In
2012 Muller was a relatively small but leading yoghurt brand turning over
£368m, and delivering an operating profit of around £37m - a tidy 10% return! At
the 2014 Semex Conference I put up a slide of a Meerkat fiddling with his “equipment”,
and referred to Muller CEO Ronald Kers who, at the time, was focussed on Muller
being the biggest UK milk processor. I called it Ronald and his willy-waving exercise.

Wind
the clock on another three years and, in 2017, Muller has turned over £2.1bn
and is now processing 25% of Britain’s milk, which is circa 3.1 billion litres
and second to Arla at 3.8 billion. And yet Muller still delivered an operating
profit of around… £37.9m.( preamortisation and impairment)

Thus,
since 2012 Muller has increased its turnover by almost six-fold and acquired Wisemans
(£282m), Minsterley (£4.3m), NOM Dairy (£14m), has built a new butter plant
(£17m), bought Dairy Crest’s liquid business (£80m), and in 2016 announced a
£100m investment programme, as well as announcing some closures in 2016.A total five-year spend of £500 million! What
a poor return on investment for all of this then!

However,
this is not a feature unique to Muller, and is fairly representative of how
most, if not all, of those in the GB liquid business are treading water. It’s
unsustainable. There is lots of detail behind the numbers, but they don’t
appear to be the sort of businesses that Dragon’s Den investors would want to
invest in! Are any GB liquid dairies attractive?I doubt it!

So,
how long with Theo Muller take the pain?Will he weather the storm in anticipation of better days to come or quit
the UK and sell out?I know what I would
do, and I would ditch the willy-waving in a bid to be the biggest just for the
sake of it.

Now
to farm assurance again. Arla has its basic Arlagarden base dairy standard,
which already sits above Red Tractor, and which all members have to achieve. If
they don’t they are out. Previously I stated that Arla had terminated some producers’
milk contracts, and one of the executed tried to persuade me that it was unfair
and simply small producer victimisation. He referred to it as the Arla equivalent
of ethnic cleansing. When questioned Arla have confirmed to me that the number
of terminations is now in double figures but won’t elaborate anymore. Clearly
it is taking action on sub-standard producers though. Rightly so.

Now
step forward Arla UK360, where even higher farm standards are rewarded by
retailers like Aldi, who pay a premium. Some farmers will wince, thinking Arla
will simply drop Arlagarden and universally insist on 360 standard achievement
by all members. I am assured this is not the case, but I am by no means
convinced Arla won’t eventually ditch Red Tractor unless it seriously ups its
game.

Having
thought about UK360 it sounds like a game changer. To date most higher
standards have been set by retailers like Tesco, whereas UK360 is a move for
farmers and processors to take the lead in stepping up to protect retailer
brands in a very cost efficient transparent way. It’s a one stop Arla shop of
high standards that Arla customers can buy in to, and I believe it’s an
alternative approach which will appeal to numerous customers and will likely be
replicated by other milk buyers. Maybe even those retailers with their own
standards will view this concept favourably and seize an opportunity to cut
cost. Here’s a quote from Graham Wilkinson from Arla, which some will agree
with and some will no doubt prickle at: “The most successful dairy farmers
today are those modernising traditional farming methods!”

Similarly
First Milk have commented that Farm Assurance Schemes must enable producers and
processors to promote their products as being safe and responsibly produced to
the standards that consumers expect and deserve.

First
Milk are one of several processors calling for assurance assessors to spend
more time on the farm inspecting, and less time analysing records and paper
trails. They are also calling for higher risk farms to have more frequent in
depth and unannounced inspections and conversely for higher performing farms to
be recognised with less frequent audits. Other milk buyers are calling for Red
Tractor to make unannounced visits to antibiotic failure farms, but -guess what!
- they have been pushed back.

Last
month’s article about Red Tractor spending £1.5million on a five week TV
advertising campaign “in a bid to improve consumers understanding of the Red
Tractor logo” prompted several reader comments, all of whom were extremely
unhappy at the cost of “fancy TV adverts”, and stating its time Red Tractor had
teeth during inspections or it should shut up shop. Red Tractor appears to be heading
for intensive care in the dairy sector simply because its standards are too low
with too much emphasis placed on what’s on the forms and not what’s on the
farm, and because they lack teeth.

A
number of animal facing NGO’s are clearly peddling the “save, preserve and
release” message to further their causes, and are convinced a non-dairy diet is
better for the planet (in fact some claim it will save the planet), and better
for the environment. Many are hardcore vegans think there should be no animal
use at all, and are convincing our consumers that animal agriculture is cruel
and illegal! There is zero consideration for the 1 billion people globally who
produce, process and deliver milk.

Remember
the dairy industry has to up its quality assurance and promotional efforts. Plant
based diets are no longer a passing trend and the perception that plant based
dairy alternatives have superior health properties together with increasing
consumer concerns over the impact of dairy on the environment are strong and we
must not dismiss them because today’s youngsters have the power to change
demand.

Some
of you will feel Potter and indeed the world is having a go at you, or that the
EU is the source of all your problems. As one reader commented “The self
confident, self aware and thriving farmer does not want his product damaged by
other farmers. Therefore, it’s a cost worth paying!” Failure will put the
industry’s future at risk.

Most
farmers who have contacted me are pushing for low standard operators,
especially those who have a disregard for the negative image they portray, to
lose their assured status, with many calling for an anonymous hotline via
email, text or phone enabling concerned farmers and others to check the assured
status of a farm online and report concerns to the relevant authority who
immediately take action and investigate.

Comments
to ianpotter@ipaquotas.co.uk

IP
DAIRY FARMER -October 2018

Don’t
shoot the messenger, but it’s late September now and we are at High Noon for
prices.Unless the market changes the
next milk price moves are almost certain to be down, and announced before we draw
the curtain on 2018.All the indicators
point to this and nothing anyone says or writes will change it.

AHDB
levy paying farmers have until 9 November 2018 to respond to DEFRA’s major and
significant review of the organisation, andI urge all of you to have your say no matter how brief it is.AHDB handles around £60 million a year of
your money (AHDB Dairy £7.5m) and DEFRA wants to hear the views of those who
pay this para fiscal tax, especially whether you view it as value for money.

In
terms of the complete AHDB package one area caught my attention in its2017 performance report, where it scored just
5.1/10, on the question of levy payers’ satisfaction with AHDB. This was up
from 4.7 in 2015.That’s a very poor
score, as is its stated target of a 6/10 by 2019. There’s an adage in football,
they say, that if every player in the team puts in a performance that gets them
a 7/10 rating then the team will win most games. A 5/10 rating and they will
lose every game.When I view Tripadvisor
I don’t tend to book places with scores of under 7/10, let alone 5!

I
also noticed AHDB spent £23m on staffing, employing 429 full time staff plus
part time board members, in 2018 , which has risen by over 20% in five years.
So for sure, while the number of GB farmers is shrinking, its levy body is
increasing its staffing levels massively.

AHDB
Dairy has definitely risen to the challenge and upped its game, particularly in
terms of more direct useful market news and interpretation. But I was also
interested in AHDB Dairy’s October 2017 report when it said that the top 25% of
businesses will remain profitable irrespective of what is thrown at them.In other words, the winners will keep winning
and the losers keep on losing seemingly regardless of AHDB’s work. This is backed
up by the co-operative Dale Farm, who recorded a £600 per cow profit gap
between the best and bottom 25% of its members, and accepts it has a role to
play to narrow that gap.

I
recently attended a local strategic dairy farm launch where, to be fair, there
was a lot to learn and discuss from two brothers who opened their doors and
finances, but the attendance of grass roots dairy farmers to me was
disappointing.Yes, like others, AHDB
Dairy has a role to play in knowledge transfer in helping all improve their
performance and profitability but getting farmers to engage is an uphill
battle.

AHDB,
along with DairyUK, alsoplays a crucial
role in protecting the image of dairy farming and addressing public concerns
but I am still convinced the best people to protect the image of dairy farming
are the farmers who tell consumers how proud they are to be a dairy
farmer.So keep telling your positive
stories!

Now
back to the Red Tractor, which was launched by the NFU in 2000 and is now
running a five week £1.5 million TV advertising campaign, not funded by
farmers, in a bid to improve consumers’ understanding of its logo.

Clearly
aiming to up its game, its new target is to become “the flagship one stop shop
for farm assurance for British produce and its 46,000 farmer members”.

It
intends to automatically carry out unannounced inspections within three months
of recording a serious or important failure in areas such as welfare and
safety.If this inspection results in
further non-compliance it triggers a second three month unannounced inspection,
after which non-conformity results in expulsion.Its aim is to make it tougher for the
non-conformers but I believe the six month window should be butchered and that
one serious second failure should be an automatic red card.This would give Red Tractor teeth and boost
trust in its scheme.

Seven
recent exposes have given Red Tractor and the NFU a PR migraine, with Red
Tractor approved farms failing to guarantee what the public expect them to. It
resulted in one farm being expelled from Red Tractor and six suspended, and is
viewed as the absolute minimum penalties.The expelling was for using an electronic goad.

Oh,
and on the subject of electric goads, clock this: one farmer contacted me
having caught one of his employees with a taser gun!The employee was instantly dismissed and
guess what: is now claiming wrongful dismissal! Surely gross misconduct and
cruelty are both key factors and for me the employee should be banned from working
with animals, period.

It’s
a fact animal welfare concerns and health messages will continue to influence
whether consumers increase or reduce dairy consumption. Farmers with lame, sick
and basically knacker cows in their farmyards that front onto a public footpath
or highway need to think again about the potential damage they are doing to our
great industry.

If
you doubt the influence and power anti-animal farming organisations have then
take a look at what’s happened with Nabisco’s Barnum’s Animal Crackers, which
have been around since 1902 (116 years): Animal rights activists are claiming a
victory in freeing the Barnum’s animals from their cages, alleging the
packaging suggested the lions, gorillas, elephants and polar bears were in
circus cages.Due to pressure the
packaging has had to be re-designed, showing the animals wandering freely side
by side in grass fields. Not only that but Barnum’s Circus has foldedafter 146 years due to collapsed ticket
sales.

I
confess I don’t like zoos or circuses and in general I guess most of you don’t
accept the caging or chaining of wild animals for our entertainment, especially
when they are forced to perform by using whips, or sticks or the sort of goads
mentioned above.

As
I pen this article there is a radio broadcast scheduled called “Is time up for
cow’s milk?” The pre-amble states that sales of cow’s milk are in decline
across Europe and the USA, and asks whether this a dietary fad or are people
realising that milk is not as good for us as was once believed, and whether
“the White Stuff is past its best before date”.

Our
industry is under attack so let’s up our game and avoid scoring own goals and
handing the anti-dairy activists and campaigners more ammunition.

Comments
to ianpotter@ipaquotas.co.uk

IP
DAIRY FARMER -September 2018

Because
last month’s article proved hugely popular I make no apologies for returning to
the hot topics of farm assurance, our on-farm image, and the escalating and
alarming coverage hard-core anti-dairy and livestock farming groups are
achieving.

July
saw Red Tractor regrettably make the front page in The Times with the headline “Farm Animals Tortured under Red
Tractor Label”, with the paper’s Environment Editor stating that Britain’s
biggest farm approval scheme is failing to detect breaches of its animal welfare
standards because only 1 in 1000 farms it certifies receives an unannounced
inspection. The article then revealed “shocking undercover footage depicting
frightened pigs given repeated shocks with an electric prodder”, which had been
taken by animal rights activists.The
farm in question had passed no less than five pre-announced inspections in the
past year.

Having
said that, one Scottish farmer wrote to me stating that his recent Red Tractor
inspection was the most rigorous and comprehensive to date. This suggests the
inspection standards are very inconsistent - a fact confirmed to me when I
recently met a former assessor.

Our
dairy industry has an excellent story to tell, but Red Tractor, together with a
few dairy farmers, are playing with fire and most readers questioned just how
some of their neighbours passed their Red Tractor dairy inspection.
Understandably the question being asked in many quarters is whether the Red
Tractor logo is genuinely a mark of quality food that consumers can trust. In
my opinion if Red Tractor fails to immediately up its standards and inspections
I will support others in the industry who are now comparing it to a sick dog
which needs putting out of its misery.

Reader
responses included criticism over Red Tractor failing to inspect the physicals
and conducting a paper exercise instead; gratitude for me writing the truth and
“for addressing a huge issue many choose to ignore and turn a blind eye to”
(signed a proud dairy farmer); and one that many related to, summed up as “a few
irresponsible morons are doing a lot of damage and provide feasting times for
these anti-dairy groups.”

Numerous
readers didn’t hold back, demanding some farmers exit the industry for the
benefit of others.One claimed the use
of blue alkethene pipe on cow’s backs was commonplace in a large south west
dairy farm and that evidence is on video footage. I hope it is mischief-making
because an identical filmed incident in New Zealand resulted in outraged
farmers hounding the transgressing farmer publically, and condemning him as “a
leech at the bottom of our industry who must be kicked out”, followed by
comments such as “society doesn’t tolerate or make excuses for wife beaters,
and neither will we in this case.”

We
talk about humanely treating our animals, but perhaps it is time we found
better ways to support those who won’t change on how to exit.It’s an industry problem which needs an
industry solution. But I remember being in several meetings where this was
discussed, and action by industry bodies promised and then… nothing.

Recently
the USA’s Animal Agriculture Alliance let me have sight of its confidential
report from this year’s 15th annual Animal Rights National
Conference, which gave me a bird’s eye view of how animal rights extremists plan
to attack us. It was a four-day conference involving 175 speakers representing
over 100 vegan organisations. The speaker statements made were predictable and
alarming including “there is no such thing as humane slaughter”, “dairy is not
environmentally friendly,” “all farming is factory farming irrespective of
size, and it’s cruel.” Plus “You wouldn’t eat your pet dog so why eat other
animals?” and “Happy animals on farms do not exist.” One speaker joked about
killing some vivisectors to make them stop killing animals, to which the
audience cheered as delegates were constantly encouraged to take extreme direct
action.

In
summary, these groups continue to increase their aggressive tactics in a bid to
remove dairy and meat products from consumers’ tables. They are not interested
in enhancing animal welfare as their goal is to liberate all farm animals.

I
have to say these anti-dairy organisations appear to be very professionally
run, with talks on how to put your money into cruelty free investing, and a
benefit auction offering “lovely premiums for donations”. There was even a
handout on how to become an activist.

They
are convinced they are the only honest people telling the truth and that vegans
are the happiest people in the world. “One day veganism will be the social norm
not an alternative”, was the mantra.

Films
were also shown showing drone footage exposing what they call the dairy
industry’s “dark secrets”, with exploitation of motherhood through cows
“crying” over their calves only hours after giving birth, plus those which
included de-horning, ear-tagging, castration, branding, and tail twisting, to
name but a few.At the end of the film
the room was blacked out while they held a minute silence for the animals.

They
use fear images with footage so sensational the audience was in tears. They
even had headsets they put on people placing them in a slaughter house to
witness what animal suffering looks like. They even cross reference it to
several verses from the Bible.It’s all
heavy emotional, pseudo-religious stuff. Current and planned campaigns include
“Get milk out” and “The despicable dairy industry” plus PETA launching an
anti-dairy month campaign plus plans for a “De-calf your Coffee” campaign (by
choosing Almond, Soy or Coconut milk).

The
groups have programmes to train chefs in schools and colleges and hospitals to
regularly cook plant based recipes and use celebrities to gain more traction
and to promote the logo “kind to animals is cool”, as well as programmes for
talks at school assemblies.One speaker
even stated that he tells the children that diseases like cancer and diabetes
can be prevented by going vegan! If that’s not enough they also educated
delegates in a session on how to influence politicians

There
was a session involving a UK speaker claiming vegan activism in the UK is
mainstream and trending online, and they trumpeted a catalogue of successes
including Costco selling circa 6 million vegan burgers a year; Haagen-Daas
selling vegan ice cream; KFC testing meat free meals and a vegan figure skater
who won an Olympic medal. It all concluded in the closing remark “Ladies &
Gentleman, what we have is a vegan revolution – The future is vegan.”

Make
no mistake livestock agriculture is under a lot of pressure. We don’t need bad
practice from a few idiot farmers to heap more of it on us.

Comments
to ianpotter@ipaquotas.co.uk

IP
DAIRY FARMER -August 2018

As
previously reported my May article triggered the largest reader response in 27
years of writing this article, closely followed by responses to my June article
regarding the lack of dairy farms achieving an acceptable basic standard. Many
respondents (including from farm assurance assessors!) talked about useless and
dangerous farmers, and all, bar one reader, supported my comments.

Another
claimed he knew his Red Tractor (RT) assessor so well that for several years he
had done his inspection over the telephone, with no farm visit! If that’s true
then shame on the assessor! The farmer claimed assessors have to get in and out
of farms quickly because they are paid a flat rate fee per farm, consequently
have no desire to spend time checking what’s actually on the ground. This
raises the question of consistency, and concerns that some assessors fail to
address the key issues.In addition, one
assessor commented that he doesn’t believe some of the questions are
relevant.

Several
claimed Red Tractor farm assurance had “lost its way”, had fallen behind the
times, and was “focussed on a paper tick exercise”, with not enough focus on
the basics of good dairy farming principles and practice. Other farmers pointed
to significant differences between other assurance assessments, and said Red
Tractor was the easiest one to pass, and lacked teeth.

Red
Tractor is, however, working on strengthening its standards and moving towards
a risk-based approach, with changes to the frequency and type of inspection in
a bid to improve compliance.It can’t
come soon enough. As far as I am concerned until it’s publicised that obtaining
Red Tractor dairy farm assurance is not automatic or a tick box exercise, with
some farmers excluded and others suspended, twinned with a lifting of standards
to either bring the bottom up or exclude the worst, then these standards will
always be considered the lowest rung on the ladder. Today processors and
retailers are using Red Tractor as a low baseline and implementing their own
farm assurance schemes above these.Unless it ups its game it risks being side-lined, or dropped.

I
received a couple of emails from Arla farmers who are non-conformers on short
notice audits on its Arlagården scheme, indicating that those standards do have
teeth. Arla has informed them if they have two non-improving farm assurance
assessments in an 18-month period they go onto what’s known as ‘the contract
termination risk register’. That means Arla will not collect or pay for the
milk, which equals automatic contract termination.These farmers have had improvement advice and
given plenty of opportunity to remedy the issues.

I
back Arla 100% (and other companies with the same stance) in terminating milk
supply contracts for persistent poor compliance, because these farmers pose a
reputational risk to the company’s brand and the industry as a whole. I
requested more detail from Arla, which they were hesitant to provide, however,
to give an indication of just how poor these farmers are all 2,400 Arla members
average number of non-conformances is 3 compared to the “on watch
group”, who average 13 plus - or four times the average! These
farmers are, frankly, hooligans who run the risk of bringing the entire
industry into disrepute. There will be casualties because the wriggle room is
no more, and it’s time to draw a line in the sand and say enough is enough!

So,
lots of support for my views. Except, that is, from one well known 2,000+ cow
totally housed Cornish Arla supplier, who gave me the benefit of his opinion as
he left the members enclosure on the first evening of the recent Royal Cornwall
Show, no doubt having spent the day giving everyone else at the show the
benefit of his unquestionable wisdom.He
proceeded to warn me “to be careful what I write” and that he was fed up
reading my comments which are “constantly running the dairy industry down and highlighting
things which should be kept quiet from the general public.”I pointed out my articles are not compulsory
reading, which didn’t go down well, and his wife then promptly and tactfully
dragged him away - but not before he’d drawn a well-known consultant into the
debate by saying “and he agrees with me!”

I
decided to meet said consultant who, to my surprise, hadn’t read either of the
articles, consequently hadn’t an opinion.He did, however, support the view that there is no place for dairy
farmers who disregard and fail to achieve the standards we all expect. Quite
why a large, undoubtedly professional dairy farmer appears not to agree is a
mystery.

The
fact is that highly organised anti-dairy groups are hunting down evidence on
poor animal welfare, or on culling bull calves, or on antibiotic use, and
processors, retailers and farmers have to head them off at the pass by being
more streetwise and consumer focussed. As PETA’s Vice President Dan Mathews
said: “Learning of the conditions under which cow’s milk is obtained leaves a
sour taste in your mouth. That’s why so many customers are ditching dairy for
coconut, almond, oat, hazelnut and soy milks.”

It’s
no good believing these dairy free diet groups will disappear and the tide will
quickly turn in favour of dairy.In fact
the plant based protein market is forecast to grow up to 11% per annum towards
2021. These dairy alternatives have been around for decades but they have
suddenly intensified their profile and now we have a trend towards
Flexitarians, who actively avoid animal based foods at least once a week, and
possibly pose the biggest threat to demand.Germany and the UK have more than 20 million of these flexitarians,
apparently, and reduced demand for livestock products is now a mainstream scientific
call. Many organisations are insisting global dairy and meat production and
consumption must be cut in half by 2050 to prevent greater climate change, for
example.

Yes,
we still have a great story to tell but the pressure is on. The TV channels are
awash with food, farming and environment programmes and documentaries and we
can use this to our advantage. But not if, as one reader commented, “they see
farmers covered in shit carrying a piece of alkethene water pipe like it is a
weapon.”He hit the bullseye.

Both
are wrong and a gift horse to the anti-dairy brigade. The dairy bull calf
situation is another one, and a topic I aim to return to next month.
Incidentally, I do accept the valid point that some have to be euthanized
through no fault of the farmer as a result of a farm’s TB restrictions. But
more of that in a future article.

Comments
to ianpotter@ipaquotas.co.uk

IP
DAIRY FARMER -July 2018

As
I arrived at this year’s annual Dairy Industry Newsletter conference the first
thing I noticed at the coffee station were cartons of organic soya and almond
as milk substitutes. Yes, these milk imposters have even invaded a dairy
conference (courtesy of the hotel, not DIN!)!It’s a sign of the times but fortunately, none of the delegates saw the
necessity to drink either (not least because they don’t actually contain much
soya or almonds and are full of, well, other stuff!)

The
opening speaker, Brigitte Misonne from the EU Commission, surprised a number of
delegates by declaring the Commission was embarking on a “big push” to sell the
remaining 300,000 tonnes of aged EU Intervention SMP, with the aim of clearing
it all in 2018. That would mean selling an average 43,000 tonnes each month,
which could harm farmgate milk price recovery! It’s certainly ambitious and a
huge quantity to sell, but Brigitte claimed the Commission is “rational and
cautious when selling”. However, she failed to convince me of her claim that
intervention SMP has a long shelf life and is as good now as the day it was
placed into store. I back Tetrapak’s view that the shelf life of SMP is three
years maximum, which is why the Commission now has to push hard. With the
trading gap between fresh and Intervention product widening, currently around
£300 tonne it is clear traders don’t subscribe to her theory either!

With
commodity prices stable to firming there is now a window of opportunity to be
seized and the sooner the SMP is responsibly sold the sooner stocks will no
longer be guilty of depressing EU and world SMP price recovery. That said, the
US and India also now have huge stocks!

I
made enquires with Fonterra / The GDT Auction platform representatives whether
the SMP stocks could be auctioned, but sadly the auction process would not suit
the Commission.

Brexit
was a hot topic and Paul Vernon, Chairman of Dairy UK, stated that as far as
the dairy industry is concerned we are no further forward than we were two
years ago when the vote took place. He is right, and everyone involved in our
industry is slowly getting concerned whether it will all end in tears if Brexit
goes bad for dairy. The UK leaving the European family is no different to a
divorce, when one partner has decided to sow his or her seeds in another field
but they both have to live in the same house without the divorce being
finalised. No wonder the relationship is getting tetchy.

Conference
delegates were constantly reminded that the UK is not self-sufficient in dairy,
particularly butter and cheese (only 56% self-sufficient), therefore to
terminate existing dairy trade links in favour of developing new ones is
“playing with fire”.Throughout my
business career I have had a photo in the office stating that it’s easier to
look after your existing customers than it is to find new ones. Come 29th
March 2019 (less than nine months now) the UK will be non-priority in trade
terms to our EU neighbours. Having said that it was clear from an expert on the
Asian market that demand for dairy into China is growing at around 7% annually
with cheese tipped to be the next rising star to join yoghurt. With limited
ability to ramp up domestic milk production those UK exporters who are already
in Asia and China, and who have a global perspective, are likely to reap the
rewards as consumption grows.

Then
came a jaw dropping comment that 10 farmers in the USA collectively farm 1
million dairy cows.The UK dairy cow
total is 1.904million, so those 10 farmers own more than half of the entire UK
herd! The speaker was clear that the US is focussed on units producing more
milk and exporting the surplus.“The US
continues to have an outward view looking towards Asia.” New Zealand is
similar, of course, with 95% of its milk production exported.

There
were several speakers who clearly subscribe to the idea that in the dairy world
size matters, and clearly when it comes to the size of dairy units the UK is
big in Europe but small compared to the US and New Zealand. Consolidation at
farm level will likely accelerate post Brexit, but I doubt our units will ever
match their size!

Going
forward in a post Brexit world it is clear that placing SMP in intervention
won’t be an option to help manage the market in the UK, but if we can get our
act together then futures/hedging will have a major roll, and will replace
Intervention buying as it did with wheat years ago.

But
we have a very long way to go indeed. Another speaker compared three region’s
appetites for hedging mechanisms, and it was enlightening. In the US 20% of its
97 billion litre output is hedged; in New Zealand it’s 3.8% of 21 billion
litres, and in the EU there’s a miniscule 0.1% of 155 billion litres being
hedged. This is despite the fact that both the EU and New Zealand listed dairy
futures at the same time in 2010. Yes, the uptake has been very different and
for me that’s down to education because most farmers I speak to actually
believe involvement in futures trading is tantamount to gambling when in
reality it is the opposite. It is a defensive manoeuvre and a case of
transferring risk to another.

The
importance of the dairy industry was made crystal by a passionate and enthused
Nick Whelan, the CEO of the UK’s largest indigenous dairy co-op, Dale Farm. His
firm takes 825million litres of milk from 1250 farmer members, and now turns
over close to £500million. The company also employs 1250 staff, so it’s simple
maths - for every dairy supplying member there is one other person employed by
their co-op to add value. Nick was one of several speakers who said that with
under half of the food we eat produced by farmers in the UK “can we really rely
on the rest of the world to feed the UK?”

It
made me wonder what Michael Gove’s answer to Nick’s question would be. Alas,
there was no one from DEFRA there to hear the comments, or to be educated on UK
in the context of global dairy. Perhaps they know it all already!

Comments
to ianpotter@ipaquotas.co.uk

IP
DAIRY FARMER -June 2018

Last
month’s article triggered one of the largest reader responses in 27 years of
writing this article, in particular the reference to the dispatching of male
bull calves at birth and prosecutions for cruelty to dairy cattle.

All
respondents unanimously agreed the UK dairy industry needs to clean up its act
because “we give anti- farming groups two much ammunition through our own
acts”.

According
to AHDB the numbers of bull calves dispatched at birth is increasing and along
with the industry’s unacceptable lameness statistics they collectively put the
reputation of our great Industry at risk. “It’s totally unacceptable and must
stop”, sums up the view.

There
are too many dairy farms that are not up to scratch and are, frankly, an
embarrassment. We all know where they are – the ones that we wince at when we
see them. Milk purchasers and retailers should run a hundred miles from
them.One sent me a photograph with the
comment “Some of the conditions that farmers view as being acceptable for
keeping cows just aren’t.”

I
know all the arguments about milk prices being below some farmers’ COP, and
this translating to the welfare of the cows and their environment, but this
argument will not be accepted by consumers. It might be a tough pill to
swallow, but an exodus or cull of the worst dairy farmers might be a good thing
for the industry - and the farmers themselves! After all, the families of the
farmers involved might be fed up with the hamster wheel of juggling bills,
muck, relentless workload and more, and are suffering in silence.In truth the family, in many cases, would be
happier if Dad lived his life without being tied to udders every day.

The
Red Tractor scheme came in for a bruising from most of the respondents with
regards to standards, and I have written direct to Jim Moseley, CEO of Red
Tractor, with some questions which I aim to write about next month. The
consensus appears to be that the dairy standards and inspections set by Red
Tractor are way too low and need to be jacked up - or binned. As an industry we
convince ourselves that we operate some of the highest standards in the world
but sadly “not enough dairy farms come close to achieving an acceptable
standard.”

One
reader went to the top of the class by requesting the industry agrees a single
point of contact for all media enquiries, and that body has sole responsibility
to put forward media trained, articulate, professional dairy farmer business
men/managers with bright, airy, clean and modern units which we are proud to
show to the public and TV. For me, AHDB should compile a geographical list of
these media friendly farms, which their extension officers have vetted, and
which all media enquiries are directed towards. Then ALL organisations sign-up to
channelling all enquiries through this, which means no dodgy looking wannabe TV
stars suddenly appear. I cringe when I see one particular dairy farm which
seems to regularly feature on my TV. Without mincing my words the farm looks
like a shit hole, which is a disgrace and an embarrassment with filthy cows
milked by a farmer who always plays the whinging victim in filthy overalls and
wellies with a hat that should have been burnt a decade ago.

Remember,
every dairy farmer is a food producer. As an industry we are trying to portray
a wholesome clean image of milk and dairy products, but at times we are let
down by a number of dairy farmers who can only be described as a very, very
poor advert indeed. For example, I was also sent a photograph of a cow’s udder
which was far from clean and looked as if it had been on for days! A few years
ago Dairy UK gave me a badge which said “Proud of Dairy”. But I am not proud of
instances like these.

Now
I return to the Government’s decision to introduce compulsory milk contracts
under the EU’s dairy package under the Common Market Organisation Regulation
(CMO). The NFU has relentlessly requested milk contract legislation, and its
goal appears to be to get compulsory contracts introduced, and then to bolt on
additional demands post Brexit.

NFU
Dairy Board Chairman Michael Oakes has spoken to me and his view is that it’s
an easy option to do nothing, but with the Voluntary Code long since redundant,
having been by-passed by all bar a handful of milk processors, the NFU’s is
backing compulsory contracts to make them work. Surprisingly, though, he has
gone on record stating some milk purchasers “can’t be trusted to deliver fair
contract terms and continue to use and abuse farmers …..”This is caustic talk, and doesn’t even imply
it’s a handful of processors, it suggests its widespread and all of them abuse
farmers.

A
consultation on the implementation of the regulation is due any day, when
hopefully it will be clear who will act as inspector/relevant authority and I
am praying it’s not the RPA.

It’s
looking like a big shake-up where basket pricing based on competitors’ standard
litre milk prices, 13th payments, seasonal milk and retailer COP models might
all have to be ditched or pulled into line.

Soon
we will know whether it’s what the NFU hoped for or expected and whether dairy
farmers will view it as a step forward. All I hope is that it doesn’t
differentiate between plc and co-ops because that’s divisive and will open up
an almost healed wound.Equally
important is that it doesn’t pitch farmers v processers and return us back to
the dark old days.I am afraid the
language currently being used by the NFU is pointing firmly in that direction.
As I stated two months ago, the NFU and others need to be careful what they
wish for.The genie is certainly out of
the bottle! But will it grant the NFU the three wishes it wants?

Comments
to ianpotter@ipaquotas.co.uk

IP
DAIRY FARMER -May 2018

I make no apologies for revisiting the topic of promoting our great industry,
and needing to stop and think before we fuel the anti-dairy fanatics.

Some of the vocal vegans are now activists
bordering on thugs as they attempt to convince as many people as possible that
consuming milk and dairy products is not necessary, not natural, and cruel.
They are the equivalent of religious zealots who proclaim the virtues and
health benefits of plant based milks, and vehemently hate dairy farmers and
anyone who doesn’t condemn meat and dairy farming. Like all zealots they refuse
to listen to any balanced arguments.

Almond, coconut, soy, cashew, rice and oat
are all described as milks – the name of which I object to as misleading and
deceitful, especially when vital ingredients are added during processing. Add
to the list hemp milk and even pea milk, although calling it pea milk will
present a marketing and branding guru an almighty challenge. Most of these are
a combination of clever technology and marketing of what are really water+
juices.

Nevertheless, we are fighting to retain our market
share and the competitors are marketing their products under the name of milk,
or mylk, or m*lk and using celebrities to endorse them. We desperately need to
promote the heap of positives real dairy products and milk provide because, if
we don’t, more and more people will increasingly start to believe non-dairy
alternatives are better all-round.

Most readers might be under the illusion the
average consumer believes real proper milk is the most natural, healthy,
wholesome and perfect food nature can produce, and which is full of natural
nutrients, vitamins and trace elements, and love seeing cows grazing our green
and pleasant land. But those preaching the need for mankind to adopt
a purely plant based diet conveniently forget about the thousands of counties /
countries / peoples / races across the world who depend on livestock, or meat,
or hunting and herding to survive, and thrive.As one journalist
recently questioned: “are they are supposed to start living on avocados and
coconut milk grown thousands of miles from their homes?” To be specific, what
would Ireland do without cows? What would the 1.5 million Maasai tribespeople
from Kenya and Tanzania supposed to do, who can’t grow crops and where cattle
herding is essential? These and other subsistence farmers are totally dependent
on producing meat and milk for survival and prosperity. Are they now supposed
to abandon all that and listen to grandiose vegan townies sat on their
backsides on comfy sofas thousands of miles away in London?

The journalist’s article I refer to pointed out the “ultimate irony”,
that while animal activists correctly decry the encroachment of the Amazon
tribes’ traditional rainforest homeland, not one has connected the reality that
those who preach vegetarian diets are encouraging the substitution of animal
foods with plant proteins such as soya – the cultivation of which is… one
reason Amazon tribes are being displaced! (And yes, the livestock industry also
needs to get its house more in order on this.)

Cruelty cases fuel the vegans’ publicity
because they are convinced that dairy cows are mistreated and abused. Such
cases result in more consumers making a move to ditch dairy on ill-informed and
mistaken morality grounds.

Recently two US dairy men were jailed for
animal cruelty following an undercover video surveillance investigation by an
animal rights organisation, where the use of a PVC water pipe to move cows was
key to their sentencing by a judge who himself previously worked on a dairy
farm. In addition, the footage showed the breaking of a cow’s tail and
allegedly a gas torch used for udder hair trimming put to a cow’s head.More similar dairy prosecutions are already
listed for trial.

Now this comment won’t be popular, but we
need to re-think the treatment of bull calves because headlines like this do
nothing to promote sales of our valuable product. It’s almost inevitable that
more retailers and processors will impose blanket bans on the culling of calves
at birth. It doesn’t matter that we may not think there are ethical issues
about killing bobby calves, and that it is just a result of market forces, or
that we don’t accept the stresses on world resources from meat production is a
growing concern. Others DO care. And DO act. Greenpeace, for example, is
calling for a decrease in dairy production and consumption for a healthier
planet and unless we do they claim we are putting our health, our children’s
health, and the health of our planet at risk.

The fact is that some farmers need to wake up
and smell the coffee and realise how they treat their animals, and how their
farm looks to the general public are all important for the image of Dairy. And
some of you need an intravenous drip of coffee, let alone a sniff. Remember,
Brexit will hurt but it will come and go, in time.Anti-dairy groups and activists are unlikely
to disappear into the sunset and could explode in numbers, so it requires a
total industry buy-in, because if we ignore it we will simply get bitten more
frequently, harder, and in more sensitive places.

Finally, at the time of writing this article
the news broke on Muller’s new 28p, three-year fixed price deal on up to 50% of
the milk for its directs. On first glance it does look a very attractive price,
and I expect the take-up will be quite high. But as ever the devil will be in
the detail, so I intend to come back and revisit this subject next month. But
my initial reaction is that it has upped the anti on fixed price contracts and
has given everyone something to think about. Now we just need the NFU, and the
NFUS and UFU etc to not drop the Mother of all spanners in the works with its
contracts proposals to DEFRA, as per my last article, which might put the
kybosh on such deals!

Comments to ianpotter@ipaquotas.co.uk

IP
DAIRY FARMER -April 2018

Many
moons ago I mischievously posted a picture of skeletons sitting around a table,
saying it was the NFU’s dairy teams debating milk contracts because they had
been banging on about them for years, and without huge success. Well recently
the NFU and others have been asking the Government to extend the role of the
Grocery Code Adjudicator (GCA) to farmers and also to introduce mandatory terms
in contracts. While the Government decided against extending the remit of the
GCA, in what looks like a bit of a sop to dairy farmers, Defra has decided they
want to introduce compulsory milk contracts in a way I doubt even the NFU would
be happy about.

I
think most involved in dairy politics agree the 2012 Voluntary Code of Practice
(VCP) was put in place by the industry to avoid
regulation. But it has not been a success and today is almost irrelevant. When
the VCP was last reviewed the number of major processors who took time to
respond was farcical at between 0 and 1. The code has a bad reputation and is
divisive, with co-op members permitted a 12 month notice period, whilst plc
purchasers have one under three months in the case of a downward price change.These notice periods pitched plc companies
against co-ops.

So
now comes the possibility of a compulsory code coming via the Brexit exit door.
This is jaw dropping given the fact our current Secretary of State for DEFRA,
Michael Gove and his deputy George Eustace, are ardent Brexiteers. That’s
because they head up a department whose intention is to push through compulsory
contract legislation - which is based on EU regulations - at a time when the
direction of travel is fast reverse AWAY from them. DEFRA’s target is to push
this legislation through by July, apparently, and the changes will need to be
incorporated into the EU Dairy Regulations, in particular Article 148 which
covers contractual relations.

From
a farmer’s view point it might appear to be celebration time, given the intention
that milk contracts will have to either contain a clear formula, or a fixed
price, with the condition that if either changes it will require agreement or a
new contract. But I’m not celebrating yet. Such a move needs very careful
assessment to determine what this rushed Government legislation might mean to
farmers and processors. I am more than a little concerned at the prospect of
compulsory contracts with universal terms on prices because I believe
purchasers will play safe and lower prices as an insurance against a falling
market.

Fixed
prices could work for some processors in conjunction with customers, especially
if retailers buy in. But will they?Lidl
are going down this route with the new Muller contract, it seems, but how will
the long-standing and successful retailer COP models fit in?They have provided farmers with stable prices
which have protected them through the troughs. Perhaps that can be viewed as a
formula.

As
for formula pricing based on the market, as opposed to costs, the NFU Scotland
launched to great fanfare in spring 2011 a “transparent, market related pricing
formula to be incorporated as a baseline into producer contracts”. This was
based on an 80:20 split of MCVE and AMPE. At the time NFUS was convinced that
if it was adopted it would solve market failure overnight and allow producers
to forward plan with confidence and greater certainty. A lot of work went into
the formula, but it wasn’t right and it was considered a solution developed by
producers for producers. Fortunately, the NFUS formula wasn’t adopted by a
single milk purchaser and flopped immediately post launch, rarely to be seen or
heard of again. In fact farmgate price through the downturn would have
plummeted to 15.6p on the NFUS formula, some 4p and 25% less than the typical
non-aligned price. So it’s unlikely to be dusted off the shelf again.

If
a formula mechanism is required as an alternative to fixed prices a good
starting point might be to look at the index developed by the Ulster Farmers
Union, which appears to suit its market and is a useful benchmark. But it has
been subject to farmer politics with the UFU effectively forced by members (and
against its own will) to pull it when prices were low.

Several
milk purchasers currently use competitor basket pricing formulas which are
likely to be unacceptable, and they change at such short notice so these will
be a headache unless a transition period can be negotiated. Then there is the
fact that any independent transparent formula would inevitably be linked to
commodity prices and would need to factor in a risk element. The idea that such
formulas would be a silver bullet and reduce farm gate milk price volatility
appears to be naïve because it would almost certainly increase volatility.

Personally
I don’t think there will be a single index or formula solution that is right
going forward, and think my mate Walkland has the right idea in taking several
different prices, indexes and formulas and averaging them to get a benchmark
price for what UK farmers should be getting for their milk. If one index
happens to be overly high or low one month it is diluted out by the others.

In
conclusion, therefore, I am flagging-up that with compulsory formula pricing
farmers have to be careful what you wish for, and we must try to avoid being
trapped by the law of unintended consequences.

Finally,
there is the question where Producer Organisations (PO’s) and co-ops fit in to
the grand plan.As far as co-ops are
concerned the proposal indicates they will be exempt from the new written
contracts if their rules and regulations clearly show some form of formula or
fixed price. That means that all wriggle room, often technically referred to as
discretion, is completely eliminated. But does the Government realistically
expect Arla to change all of its contracts to suit UK legislation?

And
who will pay for all this?There is
certainly no proposal for the GCA’s remit to be extended so it will presumably
be a new Government agency appointment to check all 94 milk purchasers comply
with the new regulation, and issue fines for non-compliance.And that brings little comfort either given
its track record on data provision and handling. We shall see what July brings,
but my money is on the Government’s meddling bringing a muddle!

Comments
to ianpotter@ipaquotas.co.uk

IP
DAIRY FARMER -March 2018

It
wasn’t meant to be like this. When the EU stepped forward to purchase SMP at a
fixed price to provide a floor in the market over the last few years no one
imagined the product would still be there now, and wouldn’t have been
off-loaded. But the Commission has completely missed both of its major windows
for sale, and it is still sitting on 380,000 tonnes of rapidly aging SMP. So
what’s to be done with this almighty mountain of powder?

Whatever
the Commission decide (and the ONLY outlet is going to be for low value animal
feed now) it is going to affect farmgate milk prices and will hurt dairy
farmers, especially given that India also now has significant quantities of SMP
in store that is anticipated to be “tipped onto the world market very soon”.
India’s milk production is greater than the EU 28’s output, and their SMP
stocks, plus the EU’s, means we are heading for an even bigger mess this year
than last.

Milk
price reductions are one of the major talking points for most dairy farmers,
with some pessimists still bracing themselves for prices of 22p or lower and a
repeat of 2015. In truth I expected some of the March cuts to be deeper than they
have been, however while I anticipate prices will continue to drift down I am
certainly not expecting anything as low as that. But a non-aligned price of
around 26p to 27p by May/June still seems inevitable right now, and it might
even be less unless the current and very welcome market rally continues. Below
25p will be a real test because it’s a significant psychological threshold, and
I believe a price even fractionally below 25p will result in consequences for
future supply.

Many
farmers haven’t recovered from the financial straight jacket they bore in
2015/16 and at under 25p will likely throw the towel in not wanting to do
another wet cold winter milking cows for a negative return. At the end of the
day all you can do to affect your milk price is to produce what your contract
pays for, and to make sure you bag any goodies going on collection, volume,
seasonality and the like. But long-term the sector shouldn’t be about survival
it should be about being long-term cost competitive. It’s the only option.

But
I do despair at some of the comments made by some famers on milk prices. For
example, farmers who don’t supply Arla but whose milk price tracks the Arla
price frequently ask me why, when the UK is not self-sufficient in dairy, has
it dropped its UK milk price.Simple –
Arla’s milk price is linked to the European market, which is affected by global
milk prices, it is not linked to the UK’s market directly! If you don’t like
your price’s linkage to Arla then try and get your processor to use another processor
in the basket. But I bet they won’t!

Then
we have farmers on straight forward ingredients contracts that are fully
exposed to the market (unless they have forward contracted), and most of these
contracts are really transparent and similar in principle to selling livestock
by auction i.e there’s a spot price on the day. That means you will likely
receive pretty much near the average of those spot price for the month, and
there’s no doubt these contracts command the best and worst milk prices. And yet
STILL some farmers don’t understand them!

I
purposely try to avoid writing about Brexit because there’s so much we don’t
yet know about it. However, that doesn’t mean I don’t think it’s the most
important short to medium term issue that we have to wrestle with. Whatever
happens with Brexit we have to be on our guard for changes in the rules and
regulations that affect our industry. And there will be many. Some big, some
small, some seemingly insignificant.

For
example, Dairy UK, the industry’s major trade association (which many farmers
do not fully understand nor appreciate what it does on behalf of the Industry)
has recently had a major success in defending the industry over the rights to
use the name “cheese”. Basically, the UK Intellectual Property office (IPO)
accepted a Trade Mark application from a non-dairy cheese called ‘Kinda
Cheese’. Quick off the blocks Dairy UK objected on the grounds that EU law
prohibits the use of the term cheese for products not made exclusively from
milk. Thus the IPO was rejected. It’s unlikely to be the only issue the dairy
industry will need help in fighting going forward with Brexit, so well done
Dairy UK and more power to your elbow going forward.

What
we do know about Brexit is already is that our already significant labour
problems will get worse. On that score we’ve just phoned and internet surveyed
over 1000 farmers covering 2.2 billion litres of milk for Kite and the RABDF,
and the results are sobering. More than half of dairy farmers are experiencing
“difficulty” at some level with recruiting staff, with a quarter of farmers
facing “significant” or “intense” recruiting problems. Overall the survey
indicated that a total of 11% of employees were non-UK nationals, and almost
17% of dairy businesses have foreign workers within their workforce. 40% of
farms with a total of five employees or fewer rely on at least one non-UK
worker in their team.

The
RABDF is commendably banging the drum louder than most on the labour issue, and
the survey results will now be submitted as part of evidence to the EFRA select
committee looking into the availability of labour on dairy farms. Let’s hope
that someone, somewhere in the corridors of power takes note.

Finally
regarding the RABDF I hear congratulations are in order for its new Dairy-Tech
event. I couldn’t go, but I heard several reports that it was a very successful
and positive event that showcased the best of the industry in a positive,
informative and innovative way, and without any dairy cow beauty parades to
take punters away from the stands either!

Comments
to ianpotter@ipaquotas.co.uk

IP
DAIRY FARMER -February 2018

Last month’s article about the new industry dairy promotion campaign and
the innovative Department of Dairy Related Wholesale Affairs prompted a flurry of
supportive emails, especially regarding my observations on vegan groups and the
rise in popularity of non-dairy alternative drinks and products.

One sarcastic reader suggested that if I were to become a big Twitter
user it would likely result in it requiring a separate server, and would slow
down the internet!But in all
seriousness, the vegan movement has been ignited by social media, which they
have capitalised on. It is their loud hailer for their cause and messages. For
example, two vegans - Ian and Henry - have 1.5 million followers on Facebook
and claim they haven’t spent a single pound on advertising. They also have
144,000 followers on Instagram for their “attention grabbing vegan
recipes”.Note, they haven’t mastered a
vegan Yorkshire pudding and I hope they never do!Then there is a “Fat Gay Vegan” (his words,
not mine) called Sean, who has also written a book, and has 35,000 Facebook
followers.

Another reader stated “I have a house in London occupied by five 2 to
35-year olds. There is never any milk in the fridge – only soy ‘milk’, oat
‘milk’ or almond ‘milk’.This is
urgent.” Another said “That’s a brilliant article I immediately sent to my
sister in London. Although not the target age bracket she’s in the £200 grocery
spend/week but only spends under £5 on milk and other dairy, which racks me off
and causes arguments.She gets her food
information from her peers and the Sunday papers/magazine supplements.”

Susie Stanndard, AHDB’s Senior Customer Insight Analyst, also emailed me
with several key facts on dairy alternatives and the impact they may have,
several of which are worthy of a mention alongside further research by me.
Whilst dairy alternatives are witnessing impressive double digit annual growth
rates, they are from a very tiny base. However, that doesn’t mean we can ignore
the 7% market share they enjoy of the UK dairy market.

Whilst animal welfare is a concern for consumers Susie says it doesn’t
come close to concerns over health perceptions, which must be the main focus of
industry campaigns.

Evidently, the decline in dairy consumption is from consumers switching
to black tea/coffee, and from a move from eating sandwiches to wraps and fries
with no dairy ingredients in them. This eclipses lost dairy sales derived from
any trendy switch to veganism. Consumer researchers Mintel predicts that dairy
sales will drop by 11% in Western Europe by 2020. In contrast plant-based milk
sales in Europe rose almost 20% in the last 12 months. At the same time
Mintel research states in the USA “Dairy hasn’t lost the battle to plant based
alternatives.”

We have to accept the vegan groups are no longer a flash in the pan, and
are gaining popularity mainly through social media. Only 2% of consumers are
vegans, but they collectively punch way above their weight and do have a big,
and growing voice. Some organisations are also well-funded, and there are also
more and more dedicated on-line magazines and websites catering to the cause.

In the past many vegans were viewed as being a bit, well, unconventional
at best, odd at worst. Now, though, in every restaurant you go to there are now
numerous vegan dishes on offer. I don’t mind those who feel the need to be
ethical vegans, believing there are environmental and animal protection
benefits from going vegan, but I do object to the emotive lies, falsehoods and
propaganda of the zealots. If they believe it’s healthier and more ethical
that’s fine, but why do they need to shove their views down everyone else’s
throats? The billboard posters show what our industry is up against.

The overwhelming conclusion is that we need to talk positively, and to
counter the barrage of negative publicity.And we have to stay confident and positive. Kantar World Panel have
calculated in the three-month lead-up to Christmas the total dairy market grew
by 6.3% in value compared to a year ago and dairy penetrated 98% of households
which they say is a higher penetration than toilet paper – I still can’t figure
out how that works though! The biggest contributors to the 2.6% total
dairy volume growth was in cheese and yoghurt.

And now for something completely different. Wednesday, 7th February,
will see a new event, Dairy Tech. It will be an important day in the dairy
calendar, with the exhibition booking over 250 stands. This has blown away all
RABDF’s predictions. The event will be one for progressive dairy farmers who
recognise that technology and science will be at the centre of dairy farming
progress and future growth, including disease and illness diagnostics and
treatment as well as helping reduce dairy farming’s environmental footprint. I
wish the event well and hope it gets a good turnout of visitors.

Finally, as this article lands it will only be a couple of days before
up to 106 Arla chairmen and vice chairmen vote on Jonathan Ovens replacement
for what I believe is the most important democratically elected farmer job in
the UK dairy industry, and which certainly affects more than just Arla
suppliers.

Ovens’ boots are very, very big ones to fill in terms of representing
25% of Arla’s total milk and being able to debate, discuss and direct Arla’s
governance and decision making. It’s a huge job and it’s time for the farmers
to forget personal allegiances, opinions, and who said and did what. Instead
they must focus on the right person who can lead farmers through Arla’s next
phase of development, and, crucially, Brexit (which could still end in tears.)

It needs to be a special person who understands the business, the
development of retailer contracts and their requirements, and is professional,
diplomatic and savvy. And, above all it needs to be someonewho GETS RESULTS for UK Arla farmers, and
indirectly, all UK farmers.

My last
article was devoted to the new dairy promotion campaign, and this triggered a
flurry of emails to me including this one: “Ian,
that’s a brilliant article and I immediately sent it to my sister in London.
Although not the target age bracket she’s in the £200 per week grocery spend,
but spends less than £5 on milk and other dairy which naffs me off and causes
arguments. She gets her food information from her peers and the Sunday papers /
magazine supplements.” Another reader wrote “I have a house in London occupied
by five 25 to 35 year olds. There is never any real milk in the fridge,
only soy “milk”, oat “milk” or almond “milk”.

The joint Dairy UK/AHDB promotion is targeted at young parents age 18 to
36, who will be big social media users, which is now by far the largest
anti-dairy communication means. This has revolutionised how professionally run
and well-funded anti-dairy groups communicate, comment and advertise. And they
know which buttons to press.

I am not a big Twitter user but it took me five minutes to find these
postings: “Ditch dairy. Go vegan” plus “Milk is unhealthy” plus “Now Jo Public
is waking up to the darkest parts of dairy farming” plus “Drinking coconut, almond
and soy milk is better for you than cow’s milk”, and finally “Drinking cow’s
milk causes osteoporosis, blocked arteries, cancer and contains pus and
hormones”.

Plant based milks and activists are chipping away at our customer
base.The anti-dairy groups are not
going to disappear and will mushroom. This means the industry has to fund one
central science-based organisation to respond to the anti-dairy claims and to
responsibly strive to correct the misinformation and to counter the negative
discussions, especially given the fact most revolve around animal abuse.We must not ignore the threat because, if we
do, we will continue to be bitten hard. Regrettably I constantly see messages that dairy
products are bad for animals, dairy farms are bad and you should go vegan,
which is supposedly environmentally beneficial.

Groups like
PETA UK are always seeking fund-raising attention, and thrive on alarmist
images and information. Christmas is a bonanza for them in terms of cash
raising opportunities, promoting “delicious vegan Christmas roasts” and their
own extremely biased view of turkey “facts”. They are also extremely PR
opportunistic. For example, a catastrophic
cattle lorry crash, which resulted in the death of 80 cattle in the US on
November 22nd, was quickly jumped on by PETA who will “memorialise
the dead cattle with a giant billboard near the site featuring a calf and the
words “I’m Me, Not Meat””.

On top of that we have claims that the animal activist group, Mercy for
Animals, are openly recruiting undercover investigators to go on to dairy farms
to expose animal cruelty. We also now have World Vegan Day to compliment World Milk Day, which to
be honest; most dairy farmers don’t even know exists!

Believe me
these issues desperately need a total industry buy-in if we are to maintain and
hopefully grow our dairy markets. It is partly our fault that consumers have
switched off to dairy and milk because we haven’t told them how great it is for
years!

In terms of farm gate milk prices 2017 was a good year, and for sure it
looks like a party compared to what’s in store for this year, because believe
me farm gate milk prices in 2018 will be extremely challenging. The NFU
has recently slated commentators for telling you what their milk price predictions
are. That’s ludicrous. You need to know what’s coming down the line. One thing
is certain the supermarket aligned milk price premium only disappeared for a
handful of months in late 2017, and will quickly be re-established in early
2018.

As a result of the Voluntary code compliance Muller broke cover first
with a 1.5ppl January 1st price cut, which was never going to be
popular, but the big surprise was for NFUS to issue a press release trumpeting
a milk price “hold” from First Milk, and in the same release lambasted Muller’s
cut. First Milk members’ milk price topped at 29.09ppl to 29.56ppl on a liquid
standard litre price, when the equivalent Muller price was over 30.5ppl. Its
stand on price hardly warranted a fanfare.

In its frustration at the Muller price cut NFUS proceeded to dig an even
bigger hole for itself stating that it did not accept that the price cut was
due to “softening markets and market competition.” Either this was a typo or
NFUS were on a different galaxy with regards to understanding the market. If I
can keep abreast of the challenges from part time research from Stanton, NFUS
has no excuses. Surely the NFUS Dairy sector read the signals months ago, and
discussed with processors and traders what it might mean at farm level?

Due to space restrictions and timing I have decided not to write this
month about the farcical, botched and legally flouted termination by Johnny
Russell of Jonathan’s Ovens’ Arla membership, milk contract and directorship.
There has been enough on my website (www.ipaquotas.co.uk)
of the “Arla Farmergeddon” story for now.Assuming the planned district chairman and vice chairman meeting takes
place on 11th January by the time you read this article Arla/UKAF
will have smoothed over the issue or it will still be bubbling away like a
poison broth, depending on the severity of Ovens’ (as yet unknown) crimes and
the outcome of the outstanding HMRC investigation.

Three things are looking certain, though. 1) is that Arla members will
be financially worse off over time without Ovens as no one will fight their
corner harder, least of all Russell. 2) is that it looks as if the farmers only
pay lip service to democracy and 3) more and more farmers are starting to
believe that behind Ovens’ removal is a master plan to push through adverse
changes for UK farmers which they know he would disagree and block! If so
Russell will have simply been the Danish “puddelhund” (Danish for poodle) to
ensure it happens.More on this in a
future article, when we know more!

This month sees
the launch of a humorous - but actually very serious – industry-wide dairy
promotion campaign in a joint effort from Dairy UK and AHDB which will involve
posters, digital advertising and social media (mainly Facebook and Instagram).
So raise your glass to the all-new Department of Dairy Related Wholesome
Affairs!

Some of you
will no doubt chuckle at the creation of this fun but fictitious department and
its recruitment for six wholesome passionate dairy lovers! But please note, all
of you serial committee people who hop from one Board to another (you know who
you are!): IT’S JUST A JOKE! YOU DON’T NEED TO REPLY!

Some of you
won’t like the adverts, or the campaign, but for me that’s a positive. If all
dairy farmers instantly thought the idea and visuals were great I would be very
worried indeed. What matters is what consumers think, not you lot!

The objective
is to emphasise all the positives that dairy products deliver.The forerunner to the campaign was a very
comprehensive 195-page Dairy Market Development report in January of this year
by Edelman Intelligence, who are described as “tech geeks, political junkies,
branding experts and media movers” all rolled into one. So they tick plenty of
boxes.

Their advice
was that any collaborative UK dairy campaign must be positive, simple, and
loud, and must bring back customers, be visible to dairy farmers, create value
for producers and processors, as well as support all dairy categories equally.
I took time to read the weighty tome, and one line particularly caught my eye:
“If we want to change consumer’s behaviours, we need to change how we behave as
a category.”That means all of us have
to change. Including you lot!

The report
emphasises the point that any campaign must be supported by all players
in the dairy supply chain so we need farmers to ensure good behaviour such as not,
for want of an example, sanctioning poor animal welfare behaviour.

As regular
readers will know I have for decades supported the funding of carefully thought
out generic dairy campaigns to promote and defend our products, and for us all to
be seen to be proud of what we produce. “Proud of Dairy” still is a great Dairy
UK initiative (and NOT, as some think, an NFU initiative).The report is clear that one of the
industry’s problems is “the entire dairy category is suffering from a lack of
unified communication”.In other words,
we are in-fighting and blowing the candles out on the cake whilst everything
around us is burning down.

It points out
that a minority of vocal players, including animal welfare activists, vegan
groups and non-dairy alternative brands are questioning the industry’s
credentials and that the consistent anti-dairy messaging from these groups has
triggered doubts amongst some of our younger consumers to the point some
believe even their most extreme comments are true. And the environment that
dairy products operate in is becoming more hostile all the time, as anti-dairy
groups turn up the heat.

The report also
stated that we must all stand up for dairy’s heritage and future, and avoid the
pitfall of constantly apologising and defending in response to dairy free diet
conversations.In fact, a section of the
report comes under the heading of “A category under attack” because that’s what
it is when those researchers monitored online discussions. Out of 7.2 million
dairy postings/conversations there were 172,000 vegan and dairy free threads,
14,200 lactose intolerance and 2,700 dairy alterative threads.

There is also a
lot of misperception about milk.When
questioned about the fat content of whole milk the average answer was 37% fat,
with over a fifth of those surveyed believing milk’s fat content was between
80% to 100%!Only 12% got the correct
answer of 3.6%.That is an industry
failing in its education.

Turning to
other concerns, over half of respondents “worry about nutrition when buying or
eating dairy products” with 58% having health concerns over dairy. And whilst
doctors, nurses, NHS, dieticians and health-related literature are the most
trusted sources of information for consumers, out of 1000 surveys 60% of consumers
said they trusted dairy farmers to act honestly and responsibly.Thus you are clearly critical influencers!

The campaign’s
priority target audience is young parents, age 18 to 36, who regularly examine
their eating habits on behalf of the family - and especially on provenance and
naturalness.This group are foodie
trendies and four out of five enjoy trying new things. It will be a challenge
to get our message across with these so called millennials, but we have to
start somewhere and now because with half of them supposedly attempting to
reduce dairy product consumption if we do nothing this could rise to 60%+ in
ten years’ time. The campaign is designed to surprise and excite consumers, in
particular to make them re-assess the positive role dairy products play in
their diet. With 81% saying the most important thing to them is that food is
tasty, you can see why this campaign has a heavy focus on taste and connecting
the consumer with the enjoyment associated with eating dairy and having it as
part of their lives. It’s time to kill the anti-dairy myth and to stand up and
trumpet the industry’s dairy promise with the help of some endorsements and
medical experts.

It won’t be
easy because, whether you like it or not, statistically half of young people
apparently have positive perceptions of veganism and almost 1 in 5 now claim
they are lactose intolerant.

But it’s up to
all of us to get behind it, and give it a good go. The campaign has kick
started on social media right now. From February it will also go out of home to
spread the word about the natural goodness that you produce every day to ensure
more consumers and families fall in love with dairy products.The budget isn’t mind blowing at £1.2
million, but it’s a good start and it has taken a lot of effort to make it
happen. Doing nothing is not an option.

So for 2018
let’s tell our great story and hold on to and increase the 63% of consumers who
still love the taste of our great selection of dairy products.

Don’t shoot the messenger, but the milk
market is tanking down now! For example, cream was comfortably at £2.95 to
£3.00 and is now trading at £2.25, which is still a good price but a 70p plus
drop in cream is roughly a 7ppl milk price reduction in income!

In my opinion, any milk processor who didn’t
achieve increases with its customers by October 1st has missed the
boat and will find further upward price discussions extremely difficult, if not
impossible. That boat has sailed, with some purchasers having accurately read
the market while others appear to be reactionary and leader-followers.When those driving up the price (aka Arla!)
increase prices for November, December and possibly even January the followers
have little option but to say “we can’t recover any extra money, so we can’t
continue to increase farm gate prices”. At the same time, they will waiting
like vultures for the first opportunity (or excuse) to cut farm gate milk
prices.

Since its launch in 2007 I calculate the TSDG
cost to Tesco taking its TSDG price compared it to the average DairyCo price
(which actually includes the TSDG price) indicates Tesco’s financial investment
in terms of the additional money paid to farmers is £300 million+, with minimal
benefit to Tesco.

Back in November 2015 Tesco announced the
introduction of QVIS (Quality, Value, Innovation & Service).QVIS basically drives efficiency and is a
scoring mechanism, which indicates whether a farm is operating to a
satisfactory standard as per the retailer’s Code of Practice. At the time I
commented it would result in “opportunities for the best performing farmers and
casualties in terms of the loss of their TSDG contract for the worst
performers” as Tesco keep the best and shed the worst.

Almost two years later and 40 (5.7% ) of
Tesco’s worst performing dairy farmers have been served six month’s notice
because their QVIS score falls into the bottom 5%. Those scoring in the top 5%
have been allocated an extra 100,000 litres with the remaining literage to be
allocated to a waiting list of new TSDG suppliers including young and/or new
entrants.

Each of the 700 TSDG farmers now has their
own first year’s QVIS score out of a maximum 100, with the best in class
achieving 89 and the top 5% averaging 81. Shockingly the worst only achieved a
miserable score of 29 having failed to meet the standards in a combination of
areas including animal welfare, milk quality, carbon foot printing,
environmental management. In fact, on analysis, if a producer scored maximum
points in the health index or carbon foot printing it is highly unlikely they
would figure in the bottom 5%. Sadly several farmers in the exit pile have
failed in terms of their farm’s tidiness and cleanliness and allegedly some
don’t even understand why their farm’s image is relevant to Tesco! For others,
it has come as a big shock that they are relatively poor performers, some of
whom were high profile and almost sitting with their feet up.

Some of the farmers will appeal and will try
hard to improve their performance and score in a short three-month window. For
those who appeal they need to be confident their inclusion in the 5% is
temporary, and it doesn’t happen again in 12 months’ time. I accept it is
possible the odd farmer will successfully appeal on temporary grounds, which
were beyond their control. Those who exit will then need to meet Arla, Muller
and Red Tractor standards or face being forced to leave the industry.From the information I have some would
perhaps be better out and will struggle with any standards, let alone
Tesco’s!Those who don’t want to engage
will silently surrender their TSDG contract and may even be under the
impression that, particularly for Muller Tesco suppliers, they will be
financially better off!Trust me that’s
unlikely to be the situation come the Spring flush in 2018 when my money is
firmly on the TSDG price (29.45p) easily top-trumping the Muller Direct price.

The remainder need to digest their weaknesses
and aim to up their game and improve their rating in a year’s time, especially
those in the 6% to 20% relegation zone. No doubt the Tesco Dairy Conference on
the 22nd November will be a full house as producers secure two bonus
points for attending and learn of the tweaks to QVIS and how they need to do
more.

The detail in the recent Old Mill and The
Farm Consultancy Group accountant’s dairy farm incomes report is worthy of a
mention, especially the gap between Old Mill and The Farm Consultancy Group’s
top and bottom 10%, which is massive with the average COP ranging from 20.04ppl
to 39.62ppl - a difference of an eye-watering 20ppl! In addition, the Old Mill
and The Farm Consultancy Group’s comparable farm profits range from +8.94ppl to
-13.06ppl, another eye watering difference of 22ppl.

The differences are nothing to do with the
milk price achieved or milk yield per cow because the worst performers produced
1100 more litres per cow and achieved a 0.77ppl higher average milk price.The differences point to ability, attitude
and control of costs. The Old Mill and The Farm Consultancy Group’saverage COP for 2017 is 29.20ppl, and for
Tesco from November it is 29.45ppl, so almost identical.If Tesco’s range of farm profitability and
COP are similar to Old Mill and The Farm Consultancy Group’s the worst dairy
farmers will either have to change how they operate or suffer in silence with
their loss-making hobby. Clearly some require an intravenous injection of
support and assistance because in a post Brexit world it’s going to be a lot
more competitive and tougher. Some need to learn from their peers and VERY
quickly!Doing nothing and plodding on
is not a profitable option. Oh, and remember, the 29.45ppl Tesco COP is the
average for 700 farmers, which means 50% are below it and 50% above!

While I might have a very different view to
Old Mill and The Farm Consultancy Group’s budgeted 2018 average milk price of
29ppl I have to agree with its plea for dairy farmers “to continue to focus on
making their business more efficient”. That’s a given!

Comments
please toianpotter@ipaquotas.co.uk

IP
DAIRY FARMER - October 2017

Recently there have been too many negative
anti-dairy media stories and campaigns, and they are not good for our image, or
for hard working dairy farmers’ morale.

In the past couple of months anti-dairy groups have
ramped up their publicity and propaganda, especially the vegan fanatics. It’s
clear the most vocal groups have no desire to engage with the industry or dairy
farmers and simply have declared war on the sector. They have what I would
describe as a fairy-tale dream to close down livestock farming irrespective of
farming system. Consequently the whole livestock sector and milk and meat
related food industry is their target, and all systems are demonised from large
indoor herds to very small extensive herds, from organic to conventional.

The one organisation charged with investing dairy farmers
£7 million a year levy contributions to best effect is AHDB Dairy, and it falls
to them to take the lead alongside the likes of Dairy UK to promote quality,
trusted British dairy products as well as defend the positive image of our
industry from the farm to the fork.

To be fair AHDB as an umbrella organisation for all
its divisions is doing things. It has
partnered with the British Nutrition Foundation in a new education programme,
including teacher training.Education is
an area where anti-dairy campaigners and vegans appear to be extremely busy and
well-funded and have the ability to influence children to young adults. It’s
down to our industry to do likewise and you all have a duty to demonstrate how
proud you are of the part you play and to ensure the handful of irresponsible
farmers who ignore the rules and run the gauntlet of bringing UK dairy farming
into disrepute are ousted or kicked into line. That said, it isn't only the bad
or the stupid. Errors on really good farms are inevitably made and have been
jumped upon by the anti’s. We must be pro-active and not defensive, and
influence consumer preferences for British dairy products.

Fortunately, there are plans afoot for a major
promotional campaign for dairy. I don’t know the details but it has been
reported there’s a £1.2m campaign in the pipeline. As soon as this hit the
headlines the veganites jumped on it and accused the industry of being
panicked. However the reality is that the campaign goes back to AHDB’s
strategic decision last year to do more promotional activity with Dairy UK /
The Dairy Council and it has taken this long to get something sorted. Quite why it has taken this long is another
matter. I am sure that when the campaign is announced farmers will moan and
groan and criticise it because it doesn’t appeal to them. Frankly I hope it
doesn’t appeal to them, so long as it does so to consumers and educates them
about the merits of the industry and helps put us on the front foot. After all,
that’s what matters.

Farm gate milk prices for October 1st
based on a liquid standard litre are essentially at 30ppl and if yours isn’t
you should be demanding an explanation as to why not!Farmers are understandably critical farm gate
prices haven’t moved up quickly enough, and buyers stand accused of holding out
whilst commodity prices have rocketed to new heights.

As to my crystal ball, don’t shoot the messenger
but the indicators are that 2018 is likely to see prices head south, so buckle
up.Only last week, Stephen Bradley was
quoted as saying “Therefore,
we’re in the potential drop zone now, milk volumes will inevitably start to
move higher on the back of increasing producer milk prices, if nothing of
significance now then possibly moving into a fresh season next spring,
depending on the weather of course.”I agree. My expectation is that EU dairy
prices will come off their astronomically high peaks with milk prices easing in
2018, but certainly not to the ridiculously crippling lows seen in 2015/16.
There should be a tempering, not a crash. Others are echoing this view as well.

For sure at current prices milk will start to flow
in the UK, EU and New Zealand as at 30ppl plus it is human nature, especially
for cash strapped farmers, to increase milk production and with a good spring
the ride could easily be bumpy again! No wonder a number of farmers are saying
“I’m out” as dairy cow prices rocket up on the back of the economic injections
of farmer confidence. Getting out now for some will be a smart move, especially
pre-Brexit.

Thus it could be time for some of you to have
another family meeting to discuss your objectives for the next 10 years and to
take charge of your farm’s future, as opposed to sitting back and waiting for
others to map your future out for you.Basically, the time is right to make decisions whilst you are in control
of the situation and while the financial situation looks better.

As a farmer with an interest in dairying and a
businessman, I urge you all to have a clear 8 to 10-year vision and be
confident you can achieve your goals, both personal and in business.

A lot of you I know feel uncomfortable
discussing the alternatives to continuing to milk cows. Most of you have had
the same daily routine for years/generations.

I know farming is not a normal day to day job
with emotional ties to the animals and the land/farm. In my experience some of
you do need help to reach the right decision for you and your family, but
struggle to ask for help from responsible, trusted friends or colleagues.
Different support and advice for different situations is required to ensure you
reach the right decision for you and don’t continue to talk about surviving,
because in a post Brexit world you will need and want to do more than that!
It’s another task, me thinks, for AHDB Dairy and other organisations and
companies in the sector.

Last
month’s comments of show fixing and cheating, in particular my letter to retailers,
stimulated a significant response – but only one direct comment that claimed I
was wrong. Subsequently, though, the writer retracted his position. The other
comments universally condemned the practice. In addition to writing to
retailers, though, I also wrote to major dairy show sponsors to clarify their
position. I’m sure, though, that others will think that I have lost the plot on
what they see as an unimportant subject, and now view it as a personal crusade
(which I can understand.)

It was the view of Nigel Gibbens, Chief
Veterinary Officer for DEFRA, though, that has reinforced my efforts.

“Defra’s view is that the use of teat
sealing is totally unacceptable,” he told me. “Keepers of animals have a duty
of care and if exhibitors at shows are undertaking this practice then they are
failing to comply with the Animal Welfare Act 2006, which makes it an offence
either to cause any captive animal unnecessary suffering or to fail to provide
for the welfare needs of the animal.

Show veterinarians are required to
report suspected breaches of the welfare rules to the Animal and Plant Health
Agency so cases can be investigated and the appropriate action can be taken.”

Barclays, the sponsors of UK Dairy Day,
made its position clear, stating that “we would not condone cruelty or
mistreatment of livestock – for whatever purpose” and “would review our
involvement if any instances are brought to light”.It would review its sponsorship and stand
presence in light of evidence of such practices, it said.

The Farmer’s Guardian takes a similar
robust position regarding its show sponsorship and presence. But feed
manufacturer Carrs Billington was certainly the most direct and prompt in its
response. “We would fully expect all shows where we are a sponsor to
have robust and open veterinary inspection of in-milk dairy classes and it
seems sensible that this should ensure free milk expression. With regard to a
show that was found to have allowed a practice to take place that compromised
animal welfare and caused unnecessary pain, we would certainly be prepared to
withdraw future sponsorship on these grounds.” And Anglia Farmers stated,
robustly, that it would not want its name associated with any event that didn’t
have the highest animal welfare standards. There has been no word from another
sponsor, Cogent, though.

Several stewards and exhibitors have asked whether I have received a
response from Holstein UK, whose UK Dairy Day Show is imminent, of course, and
where the Holstein and Ayrshire classes will be judged. I can confirm that no
response has been received because, during a brief, tetchy email exchange with
its CEO, Richard Jones in 2016, a final communiqué to me stated that “we now
consider this correspondence closed” (which I didn’t) and “we will provide no further
responses on this issue.” This was with reference to Holstein UK’s own show
rules and whether it condones this type of cheating and whether the society
would provide a statement in relation to the Great Yorkshire Show’s second
disqualification involving one of their society’s members. It didn’t answer my
questions remotely satisfactorily, and consequently I couldn’t see any point in
writing to them.

So, to summarise, most, if not all, of Britain’s biggest dairy retail customers
would take action and if the type of cheating/cruelty described above was found
they would immediately distance themselves from that farm’s milk.Equally, sponsors are certainly prepared to
withdraw support if evidence of cheating is detected. Oh, and retailers are not
stupid and realise that it’s possible for a dairy farmer to claim it’s not
really “his cow” on the grounds that he might own it, but it was being shown by someone else. That will not wash.
Retailers have already spotted that ruse!

Inevitably a handful might yet decide to play Russian roulette with a
show’s image, or sponsorship, or their own milk contract or the image of the
dairy industry in pursuit of winning at all costs.Given the emails from exhibitors, vets and
others claiming they intend to operate as unofficial undercover spies at major
shows it will be interesting to see how long it is before this matter rears its
head again. I hope my comments (yes, ranting if you like) put an end to it all
and fair play ensues.

Now volatility. All of us accept we are exposed to volatility and price
risk, for example with energy, oil and currency. Reducing farmers’ exposure to
volatile milk prices is extremely important, and a hot topic.

Muller has invested time and money to bring 700 or so of its non-aligned
farmers, now to be known as Muller Direct, a futures contract to enable them to
hedge up to 25% of their milk production forward at fixed prices.Full details of how it operates are on www.ipaquotas.co.uk news, 9th August.

Muller is clearly focussing its attention on securing long-term
commitment, confidence and volume amongst all 1900 of its supplying farmers,
particularly to improve the deal for its Muller direct farmers.

Mechanisms like its futures trading are a big step, giving farmers the
ability to make decisions on milk price and to decide when to sell. For Muller
its aim is that, in conjunction with training and education, all its direct
farmers understand the mechanism. There are costs associated with all futures
trading and it will take a bit of getting to grips with. Let’s hope it will
help dilute the widely held belief that UK processors don’t want high prices
for their farmers.

Another option to help smooth out the vagaries of the market is Dairy
Vol, which I wrote about in my June article, and which is the brainchild of a
former banker. It’s not futures but a simple smoothing mechanism.It’s extremely cheap to run and very simple
to understand and operate.Once again
it’s transparent and several milk processors are in detailed discussions with
Dairy Vol with a view to offering it to their farmers. In fact, of all of the
mechanisms I have studied Dairy Vol appears to be the most transparent and fair
to farmers.

The exceptionally
strong cream, butter and spot markets are the main talking points and how long
they will last before coming off the boil.

Arla believes
butter and cream markets will remain strong until the end of the year but my
guess is that while they will remain strong in historical terms they will come
of the boil, if only because those in food manufacturing will have to
substitute butter and that will curb high prices.

All milk purchasers
are under pressure to raise farmgate milk prices – and quickly! My hope, and I
accept this won’t be popular in some quarters, is that prices stabilise at a
decent, fair price and don’t go overly
high - other than for ingredients’ contracts maybe. Once prices go much over
the 30ppl level common-sense goes out of the window with many farmers expanding
to ridiculous levels and the bubble bursting. You are better off taking a
moderately high price for a long time, compared to a very, very high price for
a shorter period.

I do hope lessons
have been learnt from the last boom and bust milk cycle. For a significant
number of UK dairy farmers putting on extra cows will NOT result in a
better lifestyle, in fact, recently it brought pain and misery. Many expanded
during the last boom and they still have the hangover. They need to pay off a
lot of debt and build a war chest now.

It’s human nature
to want to expand when milk prices are above the cost of production and rising,
but remember bullish predictions don’t fund expansion, only cash does! Think of
big ideas for expansion as like peeing your pants – it gives you a nice warm
feeling but eventually it can become uncomfortable! That’s unless you genuinely
are a top operator.

Dairy UK Chairman,
David Dobbin, used the organisation’s annual conference to bang home the
message about how important the dairy industry is, and that it needs to be a
government priority during the Brexit negotiations.The UK food and drink Industry is bigger than
our car and aerospace industry combined, he claimed. He went on to say that
13,000 farmers’ milk results in 73,000 families depending on dairy. He pleaded
for a planned approach and not to see the industry taken to “a March 2019 cliff
edge deal”. At the same event Commissioner Hogan could easily have fired a few
terse shots our way, but instead he chose, diplomatically, to offer the hand of
friendship, wanting to “retain a strong healthy relationship with the
industry”. Sceptics would say he would do that, though, given how important the
export of Irish dairy products to the UK is!

Now to the show
ring. I make no apologies for re-visiting the highly dubious, unnecessary and
potentially pain-inducing practice of teat sealing, which occasionally happens
in the show rings of our specialist sector and county shows. Frankly I despise this practice which has, in the
past, heaped VERY bad press on the industry. It is cheating and very ethically
dubious on an animal welfare front.

I have personally
written to our top 10 food retailers and the main (non-conflicted) sponsors of
some of our key dairy shows to canvass their views on the practice. I intend to
publish the letter on my website but to give you a flavour of it I highlighted
some of the practices which are illegal, against show rules and veterinary
advice. Aside from the cheating the potential welfare issues have been
confirmed to me by vets as a serious industry time bomb.

In recent years The
Great Yorkshire Show has been bold enough to stand up to the cheats and
disqualify two exhibitors, which is the opposite to some breed societies who
have completely failed to take action or police their own rules.As the GYS commented to me “it has
been a team effort between good vets, good stewards and the society being firm
in their opinion about show rules”.

The
question I asked retailers was: “What
action will you take against a UK dairy farmer who supplies milk to you,
whether for liquid milk, cheese, yoghurt or other dairy products, in the event
that he/she is found to have deliberately embarked on a practice that
compromised animal welfare, and potentially caused unnecessary pain to one or
more of his animals? Will you, for example, turn a blind eye like most, if not
all, of the societies seem to do, or terminate your relationship with the
farmer if he is in one of your direct or indirect suppliers or educational
“pools”, or instruct the farmer’s processor to segregate the farmer’s milk and
not supply his milk, or products made from it, to you.”

Whilst one or two
retailers have yet to respond it is clear that most will take a very tough
line.

Tesco’s were already communicating at all its farmer meetings and
commented that: “If one of our TSDG farmers was found to be breaking the law with
regard to ‘Causing pain and suffering’ of any animal especially at a public
event then we would have no hesitation to have such member and their milk
suspended pending a full investigation and, on a negative outcome for the
farmer of that investigation, look to have the farmer removed from the Tesco
supply-chain.” It also
thanked me for my activity on the issue, which helps to avoid “own goals with the consumer”.

ASDA said that “We do not tolerate any compromise of animal welfare and/ or breach
of animal health and welfare legislation” whileSainsbury simply stated that “if an SDDG member was found to be ‘cheating’ they would lose their SDDG
contract.” ­Morrisons comment was that “We take
any act that compromises animal welfare seriously. Any farm that is found to
have compromised animal welfare is investigated which would lead to appropriate
action. This could be prosecution, loss of farm assurance status or termination
of supply to Morrisons.”

Other retailer
responses will feature next month when I will also confirm the responses
received from key show sponsors and vets. Maybe the threat of losing their milk
purchaser will get the message home to these self-interested show cheats. I
hope so!

There
were two main industry hot topics at this year’s Dairy Industry Newsletter conference namely volatility and Brexit,
inevitably.

On
volatility US speaker Eric Mayer declared that volatility was “going to get nasty in the coming
weeks/months” and to expect “vicious
turns”. Farmers should “hope for the
best but prepare for the worst”, he added.

How
perceptive he was! That’s because as I write spot prices are rising and not
because of a shortage of milk but because this market is exclusively commodity
driven, with prices determined by the demand for fats. Thus the current 30p
spot milk price is determined simply by how much traders can achieve in the
commodity market, plus a margin.

One UK
trader described the market to me as being “extremely dangerous and
aggressive”, and the type that results in bankruptcies.In other words the speed of the upturn is
meteoric, and it’s a certainty it will catch some out. Farmers can only hope
they have a financially astute and nimble milk purchaser!

Volatility
and price risk management are testing this industry, but it is responding. Yew
Tree Dairy, for example, has concluded several two year fixed price
back-to-back deals on a number of contracts at a net farm gate price of
27.328ppl. This covers the next two spring flushes to July 2019.

In
addition Muller is on the brink of launching an ingredients contract that
similarly allows farmers to hedge and fix a percentage of their production
based on back to back deals with customers.Both are taking a lead in respect of helping farmers manage volatility
and it is great to see.

At the
conference, Bruce Turner from Fonterra made me sit up when he stated that dairy
products are now recognised as some of the most highly volatile products in the
world, with the price range to around 2005 running at an average deviation of
+/-10% from the average, and from 2006 to 2017 that percentage rocketed to +/-
30% and rising. According to IFCN from the time commodity prices last surged up
it was 10 months before EU28 milk production rose by any significant
degree.If that happens again it will be
early 2018 when we feel the draft.

In this
day and age keeping tabs on EU milk production is key. And there is the EU Milk
Market Observatory (MMO) in place to collate and publish this information. But
it is not that timely!

Yours
truly probed speaker Sophie Helaine, from the EU Commission, as to why, with
modern technology, the MMO had still not released the EU 28 milk production
figures for March in mid May! And the answer? Countries are late in the
submission of the information…and the UK is the main offender!

Timely
submission and release of these figures is critical.What chance do we have of sorting out
sensible trade deals as part of the Brexit negotiations when we can’t even get
DEFRA to collate and submit the UK’s production figures until six or seven
weeks after the month end?

Turning
to Brexit, not one speaker put forward a positive for the UK dairy industry. In
fact, Aaron Forde, Chairman of Ornua Foods (formerly The Irish Dairy Board)
stated he could see nothing other than downside from Brexit and went on to
state “we need to manage the downside as
best we can and mitigate the risks”.A soberingstatement for
delegates to stomach.

The
Irish certainly have a lot at stake, given that 90% of its milk production is
exported and there are plans to produce 7.5billion litres of milk in less than
three years time. Its 13,000 dairy farmer owners know that 26% of Ornua’s total
sales, including a staggering 60% of its cheddar sales (60 containers every
week!) come to the UK.We are a key
player in the future of those 13,000 Irish farmers.

Muller’s
Commercial Director, Sean Whitfield, stated that Muller did not view Brexit as
a positive. Sean also commented that one year on from the Brexit vote, did the
UK dairy industry know anything about where it is heading?“Will
the government consider agriculture sufficiently important to protect it?”,
he asked.The answer to both questions
is likely to be a big No!

Richard
Clothier of Wyke Farms said the best way to live with Brexit is to have a low
cost of production (COP).He then
majored on Promar research stating that the bottom third of producers had an
average COP of 31.7ppl and the bottom third 20.2ppl. As Richard stated a world
class dairy farmer has to be low cost. That said, and irrespective of how low
your cost of production is it’s likely that the first opportunity our friends
in Europe get to exclude our products due to diseases like TB they will put the
shutters up and close us down. That’s certainly what they did with BSE, for
years!

The
message from Richard Hampton (OMSCO) was that ensuring equivalence of standards
on imports was a bigger challenge to global dairy trade than trade tariffs.He could be right because trade deals which
allow dairy imports that are produced to a lower standard than ours will be
crippling.

However,
to balance that view George Paul, boss at the UK’s largest independent cheese
distributor Bradbury’s, stated that “the
UK is not even self sufficient in dairy so what do we fear?”

And the
last word went to John Allen of Kite when he hit a reality bullseye: “Good dairy operators (i.e low cost) will
manage in a world of reduced BPS payments.Whatever happens currency could eclipse any loss in BPS.”

Finally,
The Great Yorkshire Show is almost here and I know its stewards and vets will
continue to take the lead in keeping an eye out for, and potentially
eliminating, the few dairy show cheats who artificially and deliberately seal
cows teats to enhance the look of the udder, and, in so doing, potentially heap
bad press on the industry. In the next two articles I will share with you what
I have done to support those crusading Yorkshiremen, and to try to ensure fair
play in the show ring and head off those negative headlines.

Most dairy farmers and certainly those on non-aligned contracts now
accept that farm gate milk prices will be a very bumpy and an unpredictable
ride - a bit like riding in a car with worn out shock absorbers. If you
get the shockers repaired the ride will be smoother. Alternatively you could
change the route to avoid the bumps and potholes. For most, though, the
solution will be to get a car that’s capable of dealing with the best and the
worst roads. And that means sitting with the buyer best suited to your farm and
milk profile or quality. That’s if geography and farm size allows, of course.
Not all farms are lucky in this regard.

A much-debated topic is how can dairy farmers build in stability to farm
gate milk prices, which is especially important when the market pressure is
downwards. Some of the ways on offer to manage price volatility and risk
are rather complex. However, I have some good news: the industry is soon
going to hear about a new, simple mechanism being launched for the UK industry
which I believe will result in a significant uptake by farmers. That’s because
all it does is simply smooth out the peaks and troughs on prices.

The new kid on the block is the brainchild of a former city banker, who
is a dairy farmer and originates from a dairy farming family, in conjunction
with two well known dairy industry personalities who have spent several months
helping prepare the launch. Unlike some of the complex mechanisms on
offer (i.e linked to futures) this is so simple it’s embarrassing that no one
has thought of it earlier given the thousands spent on meetings, seminars and
market intelligence! This innovation is cheap to operate, totally
transparent to both farmer and milk purchaser, and should help build farm price
resilience. And it doesn’t involve speculators either. I think it’s going to
work!

That, though, is all you are going to get for now. Due to
confidentiality reasons I am unable to go into any more detail until my next
article, but by the time this article lands on your doormat the launch might
just have taken place. If so, then the details will have been posted on my
website (www.ipaquotas.co.uk).

It is hoped that all UK milk buyers will eventually want to offer the
new mechanism to its non-aligned suppliers. Note, however, it will be
optional whether individual farmers sign up or opt out. This is important
because the decision will be in farmers’ own hands. It is understood that
the “inventors” have already taken out a European patent for the idea, and that
at least one milk buyer is known to have been involved in the evaluation and is
keen to be involved in offering the mechanism after the launch. When all
is revealed I would welcome any comments, irrespective of whether you are a
dairy farmer, milk processor or from the allied industry.

At first sight, though, it looks to be a smart response to smoothing out
the feast and famine in a bid to help processors safeguard their long-term
supply base and to move the industry forward with a constructive idea. It’s not
the only solution in town, of course, but it looks to me to be a great starter
for 10 to smooth out the ride of farm gate prices, and to avoid that
uncomfortable bumpy ride.

Returning to my comments last month regarding what could be a hard
Brexit, Nick Whelan, the CEO of Dale Farm - incidentally the largest
indigenous UK dairy co-op - is banging the Northern Ireland farmers’ drum hard
and loudly through the trade organisation Dairy UK for continued farm
support.

Whelan recently stated “The complete removal of SFP could take the equivalent
of 5ppl off local producers’ income” and “could wipe out dairy farming and
processing as we know it.” He then went on to comment that “even if the
direct payment reduction came in at the equivalent of 2ppl many local dairy
farmers could not survive.”

For me he is bang on the money, and Brexit is looking like a slow train
coming towards dairy farmers and when it hits you it will hurt most of you. So
why are so many so called industry leaders almost on mute, I ask.
Remember the English Government might decide to phase out the SFP, whilst the
other three devolved regions could decide to keep it, with minimal
change. That would be a hard Brexit for the English. It’s time to engage
and to try to influence future policy before it’s too late and others ear mark
the post Brexit savings with what many will see as more deserving causes than
agriculture.

I am pleased to confirm there are good grounds for short and possibly
medium term farm gate milk price optimism. Rabobank for example, reports
that China’s imports will increase by 20% in 2017 and that trusted EU origin
dairy products are increasingly becoming the preferred choice of Chinese
importers. Pre and post Brexit we could do a lot worse than forge even greater
links with what, one day, will undoubtedly be the world’s largest economy with
its current 1.4 billion population (and rising!) and become more globally
focussed reducing our exposure to our “friends “ in the European Union.

As I write spot prices are at 26ppl and steadily increasing daily and we
haven’t knowingly yet reached peak daily production and if we have some are
even suggesting a second peak coming post any rain. Numerous traders are
talking of a 30ppl spot price, with the most optimistic suggesting 30p by early
June and others by July. Much, though, will depend on what you do as far as
milk volumes are concerned.Without wanting to set hares running the UK market
is warming up and cheese wise is almost on fire.

Irrespective of who might be correct the confirmed early June farm gate
milk price cuts increasingly look likely to be the last for 2017, as the market
has certainly turned another corner. Many farmers will rightly question
why some of the recent price cuts were declared and no doubt some will suggest
it was the last chance some buyers spotted to cut the price. Let’s hope
the European Commission follows the market up when it comes to offloading its
350,000+ tonnes of aged SMP, and that it continues to be a strong seller.

Arla stunned its
2700 UK members (and the industry!) with its 1st April price cut of
0.79ppl, and it is widely known that a similar cut may be on the cards for May
1st. To be f

air,
though, Arla was one of the few who pushed through a 1st March increase of
0.25ppl when others stood on. Rumours suggest that Arla needed to plug a hole
created when it paid the 13th payment. Others say the market is pointing to the
levels that it is now paying.Whatever the
reason it has put the kibosh on farmer enthusiasm. What added insult to injury
was the fact that in the same week Arla said its brands were named as recording
the largest growth out of the top 100 UK grocery brands, achieving growth of
£37m in 2016! That’s a fantastic achievement, but understandably a number of
Arla members are questioning whether such impressive brand growth is
translating into a better milk price for them, with the profits returning to
members.Questions are also increasingly
being asked about whether the current musketeer price (aka “all for one, one
for all”) for the 13,000 Arla members can continue - especially in a post
Brexit world. There are already some pushing for Arla’s milk pricing to be
devolved.

But
while Arla gets red pen strokes and a “must do better” comment for its milk
price it secures full marks for lobbying government on Brexit, to ensure it
safeguards the UK dairy industry during the negotiations. It also highlighted
that milk from the 2700 GB members is responsible for a staggering 119,000
jobs, and that Arla’s economic footprint equates to £6billion. In other words
for every £1 generated by Arla’s business some £15 are generated further
upstream. It’s a powerful message.

Now
milk volumes. An analysis of the figures confirms that production in the first
three months of 2017 is down compared to 2016 (although it has caught up this
week on a like for like basis). At least two milk buyers are concerned about
the effects any spring price cuts will have on production in the second half of
this year, and the potential permanent damage to their supply base. To my mind
ALL UK milk purchasers must recognise they are on a knife-edge in terms of
safeguarding their long-term milk supply base.

Couple
that with volatile milk prices and the almost inevitable hair cuts to farm
income that will come after Brexit and I reckon the next two years will see a
serious exodus of dairy farmers who have either had a guts full of working for
less than nothing, or will have an exit managed by others to whom they owe
substantial amounts of money.

Only
today I read an extract from a recent dairy farm administrator’s report of a
typical farming family. It made for sobering reading:

“The
farm continued to trade and milk prices have gradually increased since the
beginning of 2016,” it went. “The long period of low milk prices has, however,
led to a build up of historical debt to suppliers which the business was
struggling to service despite achieving a reasonable price for its milk
supply”. Prior to taking the decision to appoint Administrators the partnership
had been affected by TB testing issues, as well as receiving as low as 21ppl
for its expanded milk production. This story could be applied to anyone of
hundreds if not thousands of dairy farms, especially if we are about to embark
on another price collapse which sadly will put many of you on life support
(again), and which will eventually sap your fighting spirit.

Many
farmers are simply on their knees unable to cope with the wide swings in
volatile milk prices. You haven’t even started to recover from the last slump!
Then there is the scourge of TB and the fact the image of our industry is
constantly under attack from powerful well funded anti-milk and anti-livestock
farming organisations who are chipping away at demand for our fresh products -
especially among the easily influenced young people.

I
reckon a brief period of spring and summer price cuts will confirm to many
silent farmers that it’s time to quit, whilst others will bury their heads in
the sand convincing themselves and their family that it can’t get worse and
that the next 10 years will be more profitable than the last. The only factor
which may stop the exodus is whether alternative enterprises are even worse!

For
those who stay you will have to be internationally competitive as UK milk
prices converge with world dairy prices. To survive and prosper you will have
to continue to cut costs and be on top of your game or… have deep pockets!

Now
a warning and a plea that I hope will help many non-aligned farmers. From 1st
May Muller will have almost all of its producers on its new single supply
contract. However for various reasons such as imminent retirements, or the
member of The Awkward Squad (i.e those who will not sign until they are forced
to) means the existing contract will still run parallel until Muller “persuade”
them that it’s this contract or no contract! That leaves the likes of Steven
Bradley and AHDB with a dilemma on their league tables. Do they quote the old
or the new Muller price? For my money, given the “seismic” sign-up that Muller
claim, they must drop quoting the old price from May 1st.This means all those contracts who include
the Muller price in their basket will also have to accept the new contract
price. Why is this important? Because if I were Muller and I wanted to“persuade” the stragglers to sign the new
contract I would eventually go for differential pricing and widen the price
paid between the old and the new contracts. As one farmer suggested to me: if
Muller have 500 who don’t sign they have a problem, if they have 50 who don’t
sign those farmers have a problem. If the tables quote the old Muller price and
it is eventually reduced then it would deliver a blow to a heap of non-Muller
farmers who are likely to get caught in the cross fire and suffer financially.

Ronald Akkerman, aka The Flying
Dutchman, was last seen in the UK milk industry back in 2007, when he returned
to Holland having sold his milk field to Meadow Foods. This included around 200
producers, and solved Meadow’s recruitment ambitions in one hit. Well, now he
is back on the UK cheese making industry’s radar, having confirmed his
role in designing, building and operating a new state of the art farmer
co-operative cheese plant in Bangor, North Wales. This will have an initial
processing capacity of 40 million litres year (circa 5,000 tonnes of Welsh
cheddar), aiming to grow towards 100 million litres (13,500 tonnes). The
plant’s focus is the domestic cheese market, and helping to address the UK’s
somewhat embarrassing balance of trade on cheese, whereby we import far more
than we export – notably from Ireland. A cheese plant was far more preferable
to powder, as if they had opted for that they would have to export and that
comes with risk exposure to exchange rates, post Brexit tariffs and trade agreements.
Plans also include a visitor centre, café and shop to tell the whole cheese
making story from farm to fork on similar lines to the popular Wensleydale
Creamery site at Hawes.

Around 20 spring grazing farmers have
been invited to form a co-operative supplying milk to what will be a seasonally
operated factory. In building it they aim to “take charge of their own
destiny”. The contract will be a transparent formula using the published MCVE,
less transport. Any profit will be shared across the co-op’s members pro-rata
to milk deliveries, as the business aims to pay the maximum value to its
owners. The co-operative members will own 40% of the business, and will be
entitled to 40% of any profits.

The proposed retention is 0.5ppl for
up to five years to facilitate members buying their share in the business, and
the aim is to attract some Welsh Government finance to assist with the project.
The business also plans to eliminate seasonality penalties in favour of
transparent pricing – thus demonstrating the factory passes on the full value
of solids delivered.

Akkerman is clearly frustrated that GB
dairy farmers, in his opinion, have, by and large, never received the market
value of the milk solids produced and that there is minimal, if any, evidence
of a correlation between prices paid to farmers and what’s achieved in the
market place. This, he says, is particularly the case when the weighted average
seasonality penalty is 2ppl, and increasing.

There are three basic elements to the
project: (1) the supplying farmers, (2) Akkerman & team in building
it, and the day to day operation and (3) Bradbury’s, who have sole distribution
and sale rights to all the cheese as well as being part owners for the
facility and partners in the project. The somewhat ambitious objective is
for the factory to be operational by spring 2018. Good luck to them I say!

In last month’s article I referred to
the uncontrolled expansion of volumes, which resulted in an additional 1.9
billion litres (+14%) coming from UK producers as being a costly disaster.

One reader emailed me saying that “we
were told to expand and processors were signing up more milk. Even the NFU were
saying produce more milk to replace imported product.”He has a valid point.

At the time the odd processor got
greedy and tried to play the market by terminating contracts… only to buy milk
on the spot market at prices close to 14ppl to begin with, and then as high as
40ppl!This serves them right for trying
to be smart!

Contracts are changing in response to
this feast and famine on production, and the new Muller contract contains a
requirement to submit a rolling 15-month production forecast each quarter, with
a penalty-free allowancefor forecasts
within a 7.5% tolerance. Similarly Barber’s new contract offers an 8% tolerance
which, in both instances, should provide sufficient headroom. For those who
struggle to meet this both processors plan to give one to one assistance to
eliminate future penalties.

Brexit is looming ever larger in the
minds of some dairy farmers. Post Brexit farmers won’t have intervention safety
nets, and with quotas gone it will be the farmgate milk price that controls
output.That’s challenging, and will
likely result in extreme volatility!

Sadly I fear a large number of
livestock farmers will be forced into retirement unless they can think outside
the box and be open to new ways. Many don’t appear to have read the tea leaves
yet!

Some have, though, and one clued up
farmer posed the question as to whether AHDB, in particular AHDB Dairy, will survive
post Brexit. For sure its income has recently crashed as volumes have
plummeted. But will the levy carry on? Should the levy carry on?

I am not convinced AHDB’s compulsory
levy will be affected by Brexit, but perhaps moving to a voluntary charging
structure might be one way forward. It’s not a daft suggestion – in fact one of
the first to suggest it was the organisation’s former chairman, Tim Bennett,
who once stated that one day he hoped the dairy levy would be voluntary. And
let’s face it - every other organisation is in the commercial world! A levy
body isn't - as was recently stated in an article on the Political Concern website, which stated that “those who talk of
allowing markets to provide higher farm incomes are the ones who get assured
salary packets every month (with some even paid from a levy on farmers)!”.
(Thanks to Barbara Panvel for alerting me to this.)

AHDB Dairy is constantly and rightly
put under the spotlight, especially by some farmers who are quicker to
disseminate the facts than it is. Farmers are not stupid and have access to a
wealth of accurate up to date information. What they need from someone like
AHDB, especially re Brexit, is the best interpretation of the information they
have to enable them to plan and adjust. And it must not duplicate other
industry activity and research carried out in the UK or other parts of the
world. In addition, it must stop making Peter and Jane gaffs like its
‘important finding’ in a report which read “there is a big gap between current
farm gate prices for aligned and non-aligned fresh milk.” No shit Sherlock!
Farmers won’t continue to sit back and see their levy money spent on stating
the bleedin’ obvious, or wasted, or be constantly lectured to be more
competitive.

One thing is certain with Brexit -
agriculture and dairying desperately needs leaders who can leave a lasting
legacy by achieving what is right for the sector. As Meurig Raymond stated in
his closing speech at last month’s NFU Conference: “We will only get the right
deal if our voices are heard” and “what we (The NFU) say really does count in
Westminster and Cardiff”.

Now is the time for all organisations
– AHDB, the NFU and others - to come to the fore and prove it!

There are fears that with a good early
spring we could be in for another rollercoaster farm gate milk price ride
as milk volumes increase further.

There are milk processors, particularly
on the liquid side, who gave numerous reasons as to why producer farm gate milk
prices lagged behind the 2016 rapid increase in spot, commodity and cream
prices. For many farmers their prices moved at a glacial pace as they struggled
to make ends meet. The issue now is whether processors will attempt to reduce
the price in reaction to falling cream, commodity and spot prices quicker than
they put them up! (That’s assuming they are not on a contract which tracks the
prices up, that is. Farmers should certainly be ready to challenge their
purchaser if they do!

If the various co-ops operate as they
should I expect one or more will try their hardest to increase farm gate milk
prices in March and April, with the aim of getting and holding prices through
the flush at around 28-29ppl. Whether the others take a similar line will
be interesting to see.

In the case of our biggest co-op,
Arla, now is the time to demonstrate that its UK model works. The numbers
show that the currency smoothing mechanism has held back farm gate milk prices
by around 2.5 , and that means this extra money should flow to members
during the next 18 months. In fact, given where the Arla milk price is
today it would comfortably be over 2ppl higher were it not for the currency smoothing
mechanism.

There has been lots of talk about how
to smooth out the tops and bottoms and this model is the one farmer’s who
joined Arla signed up to. Hopefully further increases from Arla will
filter through in March and April, and if they do this should confirm to
members that the model does, indeed, work and will ensure they are no longer
behind the curve. It’s unlikely to end up being the top price in a league
table, and it is often said and proven that only fools chase the top prices.

Finally on prices I wish farmers
would focus on the independent facts and not the rubbish pedaled by some
spin-doctors as to what their firms’ milk price is. For many years Dairy Farmer has featured Steven
Bradley’s www.milkprices.com and
in my weekly bulletin I only refer to his numbers. Unless Steven
verifies the numbers to confirm what a purchaser’s milk price is and
what their ranking is I ignore it, and so should farmers who are being courted!

Now Muller. Its ambition is to be the
biggest and best milk processor in the UK and the buyer of choice for dairy
farmers in its catchment fields. As part of this ambition its producer
communication is now focused on developing the best supply group relationship,
having lost ground in 2016 following the acquisition of Dairy Crest’s
liquid business. It wants, it says, “a mature and trusting relationship” along
the lines of the one the former Dairy Crest producers had with Dairy Crest
Direct.

The cornerstone will be electoral
accountability, which is fundamental to dairy farmers as it gives them a
say. Muller have listened to feedback from its first series of farmer
meetings with its 1900 or so suppliers, and it’s now down to those farmers to
elect 21 farmers to a forum who, in turn, will then elect seven
to represent them on the board.

It’s no good some big shot farmers
thinking this is an opportunity to kick some back sides and get stuck in to Muller’s
management. It will require farmers who understand the brief and the
responsibilities and, for me, ones who are open minded and can think outside of
the box and – believe it or not - respect non-disclosure! We have seen too many
boards and directors full of farmers who were self-denying in their competence
in such positions, some of whom simply wanted to feel important when in reality
they were impotent.

Muller’s plan to change the directors
by rotation over a three year period is excellent because, just like
nappies, representatives all need changing regularly… and sometimes for the
same reason! It’s now down to Muller farmers to put the best candidates
forward. From now on there’s no point standing on the sidelines throwing bricks
if you supply Muller. It’s time to put up or shut up!

It’s a fact that post quotas UK dairy
farmers are competing at world market prices and to do so profitably will
require a clear plan of action. The same will be true post Brexit.

The UK is the largest cheese importer
in the world and 98% of our dairy imports come from the EU. Yes we can do a
huge amount to replace imports of dairy products to become more self
sufficient. However every man and his dog, and led by our close neighbours from
Ireland, will be banging on our door to get their product into the UK,
especially post Brexit. Then we are unlikely to have the cushion of
intervention storage, which prevents prices falling lower.

Uncontrolled expansion of milk
production to the tune of an extra 1.9billion litres (+ 14%) in less than three
years was a costly disaster for all of you. There was no increase in domestic
demand to soak up this extra supply. As supply plummeted prices
consequently recovered because the recovery was supply led NOT demand led.
I still hear from milk purchasers who struggle with the fact that some
producers believe it is their divine right to increase and decrease output
without giving any early warning to their milk purchaser. But on the flip side
some milk buyers think it’s their automatic right to operate discretionary and
even discriminatory pricing.

In farmer language the best analogy
I can come up with relates to feed purchasing. If you order 20 tonne of
bulk feed and the driver arrives and blows in 23 tonnes and you will go mad because
the bin is over flowing. Then, four months later, you order 20 tonnes and he
only delivers 17 tonnes because he’s not making any money from the 17 tonnes.
That’s a 15% variation to what you ordered on both occasions… a similar
variation to the average farmers additional output in three years!

Recently I spoke to a
couple of prominent dairy cow auctioneers to try and determine whether the run
of price increases had resulted in a noticeable reduction in the number of
dispersal sales compared to 2015 and 2016, on the premise that some farmers
perhaps have decided to carry on now that better times have arrived.

I was, however,
slightly surprised to learn that the majority of farmers wanting or needing to
exit accept that volatility is here to stay, and that many are now seriously
considering getting out now cow values are higher. When values were around £750
a head - just £100 to £150 above the cull value - they wouldn’t sell, but
values are up around £300 - £350 to around £1100 now, and this is encouraging
many to consider quitting. Others only just managed to keep afloat,
particularly when prices dropped below 20ppl, and it is now clear terminal
damage was done.

The feeling is that
significantly increased herd values will result in some going into early
retirement, or at least hanging-up the clusters, especially those with no one
following on. That last price slump went beyond the feeling among many farmers
that quitting was in some way letting the family down.Many sons and daughters witnessed what their
parents went through, and they don’t want to go through it themselves.

The good news is
that if this is going to be the direction of travel at least the farmers
involved have control of the situation and their destination, rather than
waiting for crippling prices to force a decision on them.So my message to those sitting on the fence
is this: please don’t suffer in silence, and if you decide to quit then
treasure the memories before it is too late.

I hope lessons were
learnt from the last slump and that farmers don’t have short term memories as
to what happened, especially how their milk purchaser treated them.

In addition, now
that prices are knocking on the door of 30ppl, please think twice before you
swallow the idea that putting on extra cows will automatically translate to a
better lifestyle, even though it is in a dairy farmers nature to expand.

For those who remain
in the industry what is needed now is discipline.Most of you have ruthlessly reduced cost and
maximised milk from grass, so don’t throw that knowledge and experience to the
wind now that milk prices have increased, use them to regain lost income and
start to build a war chest for the next big downturn. It will come sooner than
you expect, it will hurt, and it could easily be another three year slump.

The liquid premium is
a rural myth and an unfortunate hangover from the old MMB days.Retailers, together with some processors,
have certainly put the final nail in its coffin, ensuring liquid milk is
commoditised with limited opportunity to add value. Every man and his dog
processor fights for every litre of liquid business, and for those involved
with the likes of Tesco it’s even on open book accounting terms. The retail
giant knows exactly what other contracts its processors have and at what price
(or at least it thinks it does!).

One idea to restore
a liquid premium is the recent launch of free range milk and its intriguing
idea of a ‘Black Top promise’.I am not
a marketing guru and personally I struggle with the Black Top idea because to me
the colour black conjures up images of death, funerals and darkness. However,
the launch has certainly stirred things up a bit in the industry.

I was surprised to
hear that the people behind the launch categorised our main retailers into
“good, bad and ugly”, having accepted that in order to sell volume they need to
sell via retailers. I don’t believe it’s a good idea to openly criticise
established retailers when launching a new product, especially if you want or
need them to open their door to you. Morrisons was classed as “ugly” at the
launch, on the basis that their Milk for Farmers initiative does not see all of
the 25ppl going back to British farmers.There is no need to debate that further as you all know my thoughts. If
I were the sales person for Black Top milk I think I would delete Morrisons
(“ugly”), ASDA and Co-op (both “bad”) from my contact list because their
response is likely to end with the word “off”.

Now Brexit. Every
paper you open has an article on it.As
we negotiate trading terms post Brexit for the dairy industry a key goal has to
be to replace imports, particularly of cheese. That sounds straight forward but
remember we have a processing industry dominated by non British influences and
connections e.g. Arla, Muller, Glanbia, Paine & Partners (AKA Meadow) and
First Milk (who have a sales deal with the Irish).

On the cheese side
we have a selection of quality farmhouse cheese producers to be proud of, and
who should be looking to scale-up to replace imports from mainland Europe and
Southern Ireland.But having stated that
let’s face reality - those imports are mainly from importers who have what some
would term an unhealthy hold on our cheese industry. That makes displacement of
foreign cheese more challenging.

Finally, following
the release of Meadow Foods annual results for the year end 31st
March 2016 - in which MD Simon Chantler received a thumping £2.3m for the
second consecutive year - numerous readers suggested I compile league tables
showing which milk processors make the most profit per litre of milk (Meadow’s
is 2ppl), and another one for the top paid person in each business.Thanks for the idea, but no thanks! Perhaps
AHDB would like to pick up the challenge?

Comments to
ianpotter@ipaquotas.co.uk

IP DAIRY FARMER –
JANUARY 2017

As I write the glacial pace of milk
price improvements from mainly liquid milk purchasers is understandably
attracting huge criticism from those affected. The liquid market is now almost
a millstone, with the liquid premium long gone. The market is being led up by butter
and cheese and the liquid buyers might have their work cut out to match cheese
prices going forward.

On previous occasions like this
producers have blamed imports as the culprit but not this time. Many farmers
are convinced their processor is continuing to squeeze its farmers simply
because it can.

The differential in price is
staggering. For example, the November AMPE was 31.5ppl and the November Muller
non-aligned standard liquid litre price was 20.94ppl (plus 2.623ppl retail
supplement) making 23.56p. Similarly Arla’s member price was 23.14ppl
(including a forecast 13th payment) and some of those on basket
prices were under 20ppl. Is the market - particularly the liquid market -
functioning so poorly that it warrants an outside investigation / review I
wonder. Yes, I hear you cry!

Resignations to some milk purchasers
have rained in, and while it has taken time for the penny to drop the affected
processors realise they cannot recruit at their current milk price. Sadly
for them the loss of large volumes of milk, in addition to the loss of trust
and producer support, has resulted in permanent reputational damage.
Their only option is to try to retain their remaining core farmer suppliers.

But farmers are not all saints! Listen
to these stories of the ultimate milk tarts! The farmer signs a new
contract to commence supplying purchaser X before his existing contract to
supply purchaser Y ends. But if that wasn’t enough he then decides he wants to
supply an ingredients processor, and contacts everyone to say he hasn’t
delivered any milk to X, so he can go where he wants – despite having signed
the contract! Another had his business rescued by processor Z when he had no
milk contract, but as soon as that processor was 1p off the pace to a rival the
farmer jumps ship! That’s loyalty for you! Not. Processors should take a very
hard line on tarts like this, in my opinion.

How dramatic the U-turn has been on
price this year, assisted by the Yew Tree factor. In May at the DIN Conference
two respected industry experts commented that “a big milk price recovery was
unlikely in 2016” and “the current down cycle will continue into 2017 and
beyond”, with a third saying “we won’t see 30ppl for a long time!”.

If prices continue to head north in
2017 and above 30ppl over the spring period and beyond I fear another wave of
milk will flood the market like a tsunami, and swamp all but the strongest,
financially sound farmers again. Will farmers and processors learn from two
years of painful crisis and chaos? I fear they won’t! But uncontrolled
expansion, whether it be processor, producer or representative organisation
driven should not be repeated. For the UK the recent expansion was a whopping
1.9 billion litres in less than three years…but with no similar, sustained increase
in demand.

The implications of this expansion are
serious and costly. In the liquid sector many processors on A&B and basket
pricing have had to review their offering and have given additional financial support
in this fast moving market. Others have introduced penalties for wild
fluctuations in forecasting.

One major problem is that some farmers
see it as their right to increase milk output without notifying their milk
purchaser whose job, the farmers think, is simply to deal with whatever milk
comes along and to find a profitable outlet for it. But that isn’t always
possible. Processors had to buy large quantities of milk in spring 2016 at
23/34p+, and then sell some of it for 10p to 12ppl! Then the opposite happened
– they had to buy at 40p+! Both were financial suicide.

This comment won’t be popular but
dairy farmers should not have the freedom to significantly vary the quantity of
milk they supply to their processor without agreeing it in advance. Neither
should a milk contract force a purchaser to collect 100% of the milk without an
idea of the quantity. And the flip side is that processors should not have the
freedom to discretionary price.

I believe we have to develop contracts
that are geared to a volume and price say +/-5%. Yes it could be a
variation on A&B but the fact is processors cannot live with unspecified
milk volumes and profiles, and farmers can’t live with unspecified,
unpredictable prices. If things don’t change then two or three big buyers will
get bigger, because they are potentially better able to shoulder the financial
pressure.

Everyone wants maximum flexibility to
change what they want with limited price risk, but surely in a mature balanced
relationship the dairy industry can crack this simple conundrum and not work on
short-term smash and grab rules as they are now. I will be returning to this in
a future article, and I thank consultant Norman Oldmeadow for his input so far
on these suggestions.

Now First Milk. This time around the
firm do not appear to be the main resignation target, having dramatically
re-structured the business following the dismissal of the incompetent
individuals running the business and the parachuting in of Mike
Gallacher. Out went loss making activities and the air of arrogance First
Milk once had. Then came major surgery at board level to leave predominantly
commercially savvy people who have the ability to seriously challenge the
management and who fully understand balance sheets, accounts and cash flows.

Two years ago First Milk tried to keep
up with competitor milk purchasers in a rising market by paying a milk price it
failed to recover from the market. But then the milk price tanked. Somehow its
members clung on by their fingertips, and today many believe Gallacher and his
board actually know what they are doing and have faith in them. It’s easy to
say but all First Milk needs to do now is produce consistently high quality
cheese, particularly for Tesco through the Ornua (formerly Adams) relationship.
I wish them well and sincerely hope they succeed.

Finally, all the best for 2017!
Whatever comes, it can’t be as bad as 2016 for most farmers!

If you heard an
unexplained thud recently that was my jaw hitting the floor while I read a
recent article in The Grocer magazine
relating to Morrison’s Milk For Farmers
initiative.

The article quoted
AHDB Dairy’s senior analyst Patty Clayton stating that it had crunched the
numbers and concluded that the extra 10ppl paid by shoppers had only amounted
to an additional £290 per UK farmer. She then went onto refer to these returns
as “questionable.” The article did not look at the benefits UK farmers get from
income into the business from similar schemes or from brand income from Europe
through the likes of Lurpak. On further investigation The Grocer confirmed that it was approached by AHDB and offered an
exclusive on the article. It didn’t ask for it.

The article
effectively belittled the additional £3.7million additional income, over 12
months, that the scheme had brought to Arla farmers. That figure, though,
represents 57% of the total annual £6.5 million levy that farmers pay to AHDB
Dairy!

By default the
article also criticised Arla’s branded “Farmers Milk”, launched at the Great
Yorkshire Show in July, which pays an additional 11ppl back to farmers and has
resulted in an additional annual equivalent of £2.2 million going into farmers’
pockets. So the combined annual equivalent going back to farmers from these two
initiatives is a not insignificant £5.9 million.

AHDB Dairy takes
around £6.5m from dairy farmers, a quarter of whom are Arla farmers. AHDB claim
it “provides independent evidence-based information” in four key areas, one of
which is labelled “Market Intelligence”. Well there wasn’t any intelligence
here! It’s a mystery to me why it believed it was a good idea to pen the
article because it certainly doesn’t help move the industry forward. That, of
course, is unless its remit has secretly changed to become a lobbying
organisation under Peter Kendall’s captaincy, aka him leading the farming
Referendum Remain campaign.

What chance does
this industry have when its own levy-funded organisation throws hand grenades
at an idea that is delivering significant amounts of additional money into
farmers’ pockets! It’s worse than the remarkable events that took place at the
launch of the scheme when two Tesco producers – one the chairman of the Muller
farmer’s group! - went on National television and branded the new product “a
shambles” before a single bottle had hit the shelves!

Any initiative that gives
consumers a choice whether to pay extra money to dairy farmers has to be
applauded and should not be criticised or belittled, least of all by an
organisation funded by farmers.

The industry needs
more initiatives like these for the non-aligned and should not have successful
ones criticised. It is hard enough generating additional revenue to come into
the supply chain, so I am now looking forward to AHDB’s “Market Intelligence”
department coming up with an intelligent suggestion. I fear I might have to
wait a while on this evidence.

And I continue now
with Arla, but in an altogether different vein. Like many (all!) Arla owners
(and many other farmers whose price isn't going up because their buyer hides
behind them or basket pricing!) I am questioning why its farm gate prices isn’t
increasing at pace.

Aside from the
forward selling issue and the market lag that is affecting everyone
(disproportionately, too) Arla’s price is, of course, affected by its currency
smoothing mechanism. On analysis of the numbers it is clear that as milk prices
were falling between April 2014 until early 2016 the smoothed price was higher
than the monthly price so there was a price advantage. Now, though, it’s a
different matter: the current farmgate milk price without any currency
smoothing – i.e on a floating month by month rate - would put the November
price at a very respectable 27ppl plus – i.e a 4ppl premium above the Arla
standard litre price of 23.14ppl!

In reality the Arla
mechanism is similar in principle to a fixed rate bank loan or a futures
contract, in so far as it smooths outvolatility. The mechanism is depressing prices today, but there has been
an advantage over the long term.That
said, the price is the price and it ain’t good enough! No doubt there will be
some interesting dialogue when the firm’s boss is quizzed at January’s Semex
conference, together with its markets expert from Denmark who will hopefully be
giving out some VERY good news for 2017.

The big question for
non Arla farmers is this, though: what’s the reason for your farm gate prices
dragging their heels when you don’t have a currency smoothing mechanism?Or is it the case that Arla sets the UK milk
price for the majority, if not all, non-aligned producers?

By the time you read
this article Christmas should be a few days away. If anyone is looking for a
£10 stocking filler for someone then the book “Cows and Catastrophes” written
by Cornish dairy farmer Brindley Hosken, is one farmer’s story that many will
relate to. It is a good read and available from Old Pond Publishing.
Alternatively if you are married to a Muller supplier for the same money you
could always buy your other half a gift voucher for their first month’s
suggested membership subscription for the new Muller Board and representative
structure, made out to a Mr Sooty of Aberdeen. But please, if you do, send me a
video when they unwrap their gift!

Finally, may I wish
all my readers a very Happy Christmas and a more prosperous New Year, which
let’s face it, wouldn’t be difficult compared to this one!

And I do appreciate
all your feedback, comments and tip-offs. It is, I have to say, telling, sad
and shameful that many farmers feel that they can tell me things that they do
not feel they could tell their milk buyers for fear of discrimination or
reprisals. Keep your comments coming!

Since
April cream and butter returns have more than doubled, and are now at all time
record levels. Processing milk into ingredients under AMPE would pay 28.5ppl.

The
newsletter was spot on to draw parallels between 2007 and 2016. In 2007 farm
gate prices were at 18ppl, and a consequent drop in production resulted in a
sudden 7ppl lift to 25ppl. This time around the lift has come from some
processors, while others are leaving their farmers scratting about for every
crumb like a hen in an abandoned farmyard. The NFU have stated that in just
four months farmers have been short changed by £200m+. And this figure is
rising!

Yew
Tree Dairies (AKA Woodcocks) ingredients contract continues to lead the way, on
what most farmers regard as fair and transparent milk pricing. It has declared
a minimum 30ppl October milk pay-out after haulage, for example.

Suddenly
producers across the UK are sitting up and taking note of Yew Tree. Numerous
disgruntled farmers on non-aligned milk prices of around 21ppl or less for
October have emailed me claiming that their existing milk buyer has rubbished
Yew Tree’s pricing and suggested they wait to see what the price is in the
flush - implying it will be under 25ppl. And yes, an AMPE related price WILL be
more volatile, for sure. Hence Yew Tree’s forward selling risk management
offer.

We
could all speculate on what that spring price will be, but the processors who
rubbish Yew Tree are naive and miss the point. It has sneaked up on them, hit
the fast lane, and the evidence points to a processing business run by a dairy
farming family who are honest and up-front. Those processors who are praying
for Yew Tree’s price to collapse to make theirs look better by the spring are
being stupid and complacent.

I
have met several Yew Tree suppliers and future suppliers and the message is
clear and consistent: they will accept a poor price if it’s an honest,
market related and justifiable poor price and that they know that as soon as
things improve they will reap the benefits.

Yew
Tree’s monthly statement shows in detail how the milk payment has been arrived
at, detailing the cream value, liquid value, processing charge, and individual
haulage charge in ppl. In addition, it states the percentage of the milk which has
been brokered, and the price. There’s no smoke, no mirrors, no bullshit!

Note
Yew trees liquid contract didn’t go under 20p at anytime in the past two years
with a straightforward 95/5 AB the B price is at similar levels the ingredients
contract.

And
that’s where several (mainly) liquid processors get it wrong, because they are
not transparent and are simply buying cheap milk from loyal producers because
they can. In many cases they have forward contracted too cheaply, and those
forward deals are delaying milk price recovery.

An
advert in Northern Ireland’s Farming Life
seeking large daily volumes of Red Tractor Assured milk prompted the NFU’s
Dairy Advisor to criticise the importation. That’s perhaps understandable, but
NI is part of the UK and we can’t criticise when milk flows in and be happy
when Dale Farm exports the other way at a time when there was no home for the
surplus milk being produced - as happened previously.

I
genuinely sympathise with those facing an October milk price of c.21ppl or less.
In 21 years of writing this article I don’t recall seeing so much pain and
anger from so many farming families, with most of the emails coming from women
who simply want to help the farming business move forward.Well here is my blunt message: many of you
would be better off biting the bullet, cutting the stress and pain and selling
up. That’s already happening, and my hope is that several greedy processors -
some of whom who have had stupidly low milk prices recently - feel equal pain
when they have much reduced milk and higher costs. Below is a flavour of some
of the emails I have had in recently:

“One
of the reasons farmers struggle to exit is that a farmer knows nothing else. He
has likely milked cows since he left school, has no other interests and no idea
what to do if the cows are sold.”

Well
I say don’t stick with a milk purchaser who promises jam tomorrow! Most of them
won’t change their spots. Either bite the bullet and give notice, or sell the
cows. Take charge of your own destiny and don’t wait for it to get better.

Another
farmer who did bite the bullet commented: “There is life after cows. It might
take a while to figure it out, but there is.”

Another
said: “I am stuck milking 48 cows for my father and I start at 7am, finish at
11pm, seven days a week without a day off.I used to be proud of this but I am a tired fool with no family time, a
lot of debt, milking on a tenanted farm on a non-aligned contract to one of our
biggest liquid processors. Help on how to exit would be appreciated.”

And
here’s two contrasting emails to end on:

“My
husband sold the cows and chose me, our family and our health.We are all so glad about that choice.”

“I
refused to sell the cows because the farm had been in the family since 1924 and
my father insisted we stay in milk. Now my wife and children have left and
moved 200 miles away. I wish I could rewind and have another go but can’t. I
am, like my father, a fool married to the cows.”

Now
to everyone’s favourite retailer Tesco. An eagle-eyed researcher spotted that
all of Tesco’s own label lighter (30% less fat) mature cheddar is displaying a
small wording confirming it’s Irish cheese whereas the Tesco normal cheese is
all British, presumably from First Milk’s Haverfordwest factory. At the time
Tesco moved to First Milk for its cheese it struck me as odd the Irish were on
mute.Were they content to lose the
business, or is the reality that they lost very little tonnage?Maybe this lighter labelling is the answer
and Tesco should be “persuaded” to source its lighter range from the UK!

Comments
to ianpotter@ipaquotas.co.uk

IP
Dairy Farmer Article – OCTOBER 2016

Several milk
purchasers are concerned as to when UK milk production will turn the corner and
head north again from its 7% decline against last year. I am sure there are a
dozen theories as to why production is dropping, but top of the list by a
country mile is this one: A CRAP AND UNJUST MILK PRICE for the bulk of
producers! And a price that is being paid at a time when the cream income alone
has soared to record highs.

The upward trend in
prices has been on-going and obvious since April, and farmers are right to be
screaming for significant farmgate price increases. But expectations and trust
are being wrecked because there is a monumental disconnect between the farmgate
price and commodity prices. With a milk price around or under 20p for some
still - when they should be 25 to 28p - it’s no wonder farmers are beyond
furious and looking at taking the EU’s 12ppl volume reduction payment.Others will continue to cull cows if only to
pay bills, as most continue to suffer in silence. Less milk means less work,
less bills and more money. I mean, why would anyone produce expensive winter
milk for such a pittance? The fact is milk purchasers can and should be paying
more RIGHT NOW! and prices should reflect the seismic improvement in the
markets.

The UK is milking
fewer cows and next time a milk purchaser, organisation, consultant etc. tells
you to invest and expand for a better lifestyle challenge them because this has
resulted in the opposite this time, for the non-aligned. Equally important is
to remember whether your milk purchaser has treated you fairly, or deluded
you.For me, one or two milk purchasers
have a case to answer and haven’t treated farmers either equally or fairly.
Farmers have largely paid the price for the cost of processors either defending
or winning new business at knockdown prices, especially those who scandalously
used cheap B milk to mount smash and grab raids. Some processors don’t seem to
worry about the number of suppliers they are sacrificing.

One interesting
analogy put to me recently concerned aligned contracts. It was suggested that
there was a similarity between Tesco, Sainsburys plus the other retailers with
aligned suppliers and the best buyers around a livestock auction ring. The
aligned retailers and contracts have removed the strongest buyers from that
ring.It’s a fair point, I think,
because once these were removed the non-aligned among you are left with the
other buyers whom - just as in the auction ring - can be poor or bad payers, or
just a little bit dodgier.

To really rub salt
in the wound it’s a fact the two forces driving the GB spot milk market are
Muller and Arla. But neither appear to see any benefit in encouraging existing
producers to supply more milk. And yet instead they are likely to be paying
40ppl for spot milk by the end of September, while continuing to pretend they
have no milk supply issues.If that
wasn’t enough some of Arla’s Board of Reps (BOR) farmers saw this shortage
coming in July, and put forward a proposal for Arla to pay a 5ppl bonus on
every additional litre delivered over and above the corresponding month a year
earlier. But the plans were killed by the top brass, apparently.

This has resulted in
pretty widespread criticism from Arla’s own BOR farmers over their company’s
“One Settlement” rule, which applies across all of its seven supplying
countries. Consequently there are some member calls for Arla to effectively
re-nationalise each country’s member farmgate milk price, because one size does
not fit all.

The big unknowns in
the market right now are how much of the upturn is down to a worldwide drop in
milk production, how much is down to rejuvenated Chinese demand and last, but not
least, intervention. At what point will the European Commission start to
offload SMP from intervention stores, which will dampen upward price movements
there, or individual companies move butter out of PSA.

According to AHDB
Dairy cull numbers between February and June were 17% up on the same period a
year earlier. Their rough calculation shows that the extra animals will result
in 310 million litres less milk, and while replacements are in the system they
will come nowhere near to compensating for the 17%.In addition, German slaughterings are up 16%.

Now to the thorny
issue of credibility and good governance practice. This month the spotlight is
focussed on Muller again, and the England and Wales NFU Dairy Board.

Both boards should
provide the strongest representation for the interests of all its producers and
be accountable to members. But they don’t.

The NFU Dairy Board
is heavily co-op, and in particular Arla, weighted.It is not good representation to have both
the NFU Dairy Board’s Chairman and Vice Chairman both supplying the firm, and a
total of seven out of 12 dairy farmers on its board supplying Arla.

With Muller the
feedback to me is clearly that non-aligned farmers feel they are not
represented in any shape or form, and that the Muller board is not even in a
position to organise their own independent producer meetings to allow producers
to express their views. The view from one particularly colourful e-mailer was
that if the Board and Muller aren’t careful, and play it right for ALL farmers
they will end up looking like the characters from Sooty (farmer chairman) and
Sweep (any nominated aligned deputy), with Sue being Lyndsay Chapman and me
Butch, the nasty Bulldog. But that can’t be true as no Dutchman or anyone from
any nationality will get his hand up my backside and work me like a puppet! I
can envisage Muller farmers jumping up and down in uproar at this image of
their “representative” Board. But – and this says it all – it will only be
those on cushy aligned contracts doing the jumping!

Following on from a
recent article I am pleased to see that Yew Tree Dairies (aka Woodcocks) will,
by the time this article is out, have launched the first farmer orientated
futures trading price contracts. Well done, and about time too!There will be more on how it works in a
future issue.

My comments on
fixing cows at dairy shows and Holstein UK’s vow of silence kickstarted a
debate around issues a few farmers would rather not discuss, or have
aired.Needless to say I intend to
re-visit that area again soon.

Comments to
ianpotter@ipaquotas.co.uk

IP
Dairy Farmer Article – September 2016

Last month’s article on futures and
hedging produced a basket of emails and all (bar one – staggeringly - from a
farmer representative on an aligned contract), believed hedging mechanisms for
dairy should be developed.

Several pointed to the fact the former
Dairy Crest Direct (DCD) formula contracts has been one of the few successful
hedging tools. But this will be axed by Muller on January 31st 2017,
because it, and members of its Muller farmer board, want it finished!

On the formula DCD farmers could
choose whether to sell a percentage of their milk through a transparent formula
contract. Thus it’s a surprise that some of Muller’s customers don’t want to
take advantage of the mechanism in a bid to smooth the market volatility
extremes, and be seen to pay a fair price.A similar formula has been very successful with Glanbia in Ireland for
its farmers and customers.

It is also staggering that the
decision has been made by a farmer board where the majority are on cushy
retailer aligned contracts which bear little relation to the market. They
appear to be more than happy to benefit from a cost tracker like Tesco’s and
the Co-op’s but against their fellow non-aligned farmers who they represent
taking advantage of similar mechanisms!

Previously I have referred to Ronald
Ker’s mission statement of wanting to be the biggest and the best UK dairy
processor.Frankly I think there is a
lot Muller can, and should, do to develop hedging tools for its non-aligned
farmers if it wants to realise the dream.The same applies to Arla.

Lots of ideas are emailed to me each
month, but one from Clynderwen and Cardiganshire Co-operative MD Keith Gosney
particularly caught my attention.

He has written to both NFU presidents
suggesting the legal eagles at the organisations should analyse the main milk
contracts and produce a farmer friendly review of them, with the pluses and the
pitfalls. He also would like the unions to publish actual payouts for six month
to five-year milk periods “to allow farmers to make informed judgements of the
likely ability of the buyer to deliver a consistent price”. I support both
ideas, although for me the best independent person to produce the averages is www.milkprices.com’s
Steven Bradley. Farmers desperately need help in both areas and should not to
be seduced into the latest headline deal which will soon be on offer.

Muller, for example, is currently
under attack for failing to offer any non-aligned price increases before
October 1st. A comparison of their six month to five year paid-out
average would be a useful tool to judge their performance by and could provide
a solid basis for them to counter the awful PR they are getting now.

Now to Holstein UK.

And the second embarrassing
disqualification at this years Great Yorkshire Show (GYS). This involved a
different herd with directconnections
with thefarm which was given a life
time ban followingdisqualification by
the GYS in 2013. Once again it was the Holstein Breed Champion which failed to
pass the show’s stringent veterinary inspection, hence the disqualification and
note no appeal against the disqualification from the offending exhibitor.

A couple of retail milk buyers were
quick to ensure the offending exhibitor was not supplying them with milk.They exhibitors weren’t, but if they had been
then that would have been their contract terminated.

I have tried to get answers to
questions from both Andrew Dutton, Holstein UK Chairman, and Richard Jones,
CEO, as the show would have been conducted under Holstein UK rules and codes of
practice. The response from Jones can be summarised fairly easily:“F-off.”

But I didn’t, and won’t, and emailed
both again (twice). I know the emails were read (by someone), but there has
been a deafening silence and no response in more than two weeks.

My questions were pretty simple, I
thought:

1) Does the Holstein Society condone
cheating, or of practices that could be construed as animal cruelty, by cattle
exhibitors in a show ring? If it doesn’t then I asked if I could have a
statement to that effect in relation to the GYS disqualification. It hasn’t
provided one, which is strange as failure to provide one could, of course, be
interpreted that the Society is willing to condone them.

2) I then asked whether any
investigations over possible cheating, or possible animal cruelty, were being
carried out at the GYS by Holstein UK? After all, SOMETHING on those lines MUST
have happened or else a competitor would NOT have been disqualified! And
Holstein’s rules (clause 1.4 actually) clearly state such practises will amount
to misconduct and disciplinary proceedings against the member.

3) If there aren’t any investigations,
then why? A failure to investigate suspicions, or accusations, is tantamount to
turning a blind eye, surely! I mean, why have rules and disciplinary procedures
if they are ignored?

From the wall of silence I am getting
I think the position Holstein UK’s Chairman and CEO is taking on members who
cheat is clear: sweep it under the carpet and hope it goes away. But why?
Surely it cannot be because one of those banned exhibitors happens to be a
Holstein UK Board member who represents Holstein UK and the British flag in
European Shows where it would appear Holstein UK’s show rules are ignored by
the society.It’s the Dairy show
equivalent ofcheating at The Olympics.

It will be interesting to see what happens
at its own up and coming UK Dairy Day!

Well
one solution which merits consideration is that the night before each show all
exhibitors dairy cattle are milked out and a vet verifies this by a deadline
time.If it’s not milked out it’s
disqualified.Do this and every
exhibitor who shows in the UK is on an even playing field."Those who don’t like it can take their
cheating, evasive tactics abroad.".Do you have an alternative solution?

Comments to
ianpotter@ipaquotas.co.uk

IP
Dairy Farmer Article – August 2016

This year’s Dairy Industry Newsletter Conference was titled “Managing the
Extremes of Dairy Market Volatility”. It’s a big issue for the sector, given
that since 2009 we appear to be on three year peak and trough cycles, and they
are likely to continue.

Up until 2007 the tops and bottoms for
EU SMP prices were + or –10%, so within a 20% band.Now it’s nearer to + or -50%, according to FC
Stone, and this has accelerated since the removal of quotas. Dairy prices are now
one of the most volatile of commodities.

This brings me onto the management of
volatility and price risk. Basically I’m talking futures, which is a contract
to buy and sell dairy products at a price agreed today for a fixed date in the
future. Usually this is with no physical delivery of products, but with cash
settlement instead. Futures markets are very useful and add price certainty for
buyers and sellers, enabling both sides to budget. This is especially important
for those who plan to invest.

Few, if any, individual dairy farmers
will trade in futures but processors, PO’s and co-op’s could hedge on behalf of
farmers to help them fix prices. Trading is NOT about trying to pick the tops
and bottoms, it’s about locking into a profit margin in a bid to protect
against adverse price movements. Inevitably you will miss the highs…but you
will also miss the lows! And it’s those that do the damage! Futures can only
succeed if there is a medium to long-term approach, and a mature relationship
between the farmer and the person trading on his behalf. It’s about safety and
margin for your business. The bottom line is it’s about being able to sleep at
night!

Some ill-informed people get hung up
about the possible involvement of speculators, as if they are evil people who
will wreck the sector. To me the speculator makes for active markets as seen in
oil, wheat and cocoa etc. Daily volumes traded in these markets are
significant. The reality, though, is there aren’t any speculators in dairy.

Today we have independently verified
formula prices, which have been successful for the likes of Dairy Crest
suppliers/Direct Milk DPO. Surely the time is right for processors to develop
simple contracts with fixed volumes (and solid levels) for fixed periods of
time, say a year, for a fixed price.

Farmers cannot manage this price risk
but milk purchasers can. GB milk purchasers have been slow to explore this
opportunity and I can’t figure out what the barriers are.Perhaps it’s simply education and the need for
a team launch effort. It is a fact that, if the UK aspires to be a significant
world dairying region we need to develop mechanisms to cope with wild
volatility in world prices.

Futures market price reporting is
constantly updated and a fantastic source of information for farmers to see
what’s happening at the coal face on the farm. Just take a look at www.directmilkdpo.co.uk to see their
futures section, which is a must read. Dairy farmers need to be aware of
futures market trends just like they are on milk price trends.

Back in April I, along with fellow hack
Chris Walkland, lambasted DEFRA for publishing a February UK average farm gate
milk price up by a ludicrous 10.8% (+2.48ppl) from 23.09ppl in January to
25.57ppl. In fact, if you removed the Northern Ireland average February milk
price it sent the GB average to a whopping 26.9ppl! This was because DEFRA
lumped all of Arla’s 13th payment bonus into a single month!

We challenged DEFRA over what was a
misleading and irresponsible calculation, but it dug its heels in and refused
to back down. AHDB wouldn’t get involved either saying, basically, that “we
can’t influence DEFRA” and that Chris and I were “making a mountain out of a
molehill”. The only other person who pushed for a correction of the figure was
George Dunn of the TFA.

Chris
was so incensed, and could see the long-term implications, that he made a
formal complaint to The National Statistics Office, who oversee the DEFRA
stats. It duly investigated and concluded that “we agree that the presentation
of the statistics was materially misleading” and that “in the light of the lack
of contextual information to explain the implications of the inclusion of bonus
payments in the February estimates, we have concluded that the statistics do
not reflect the highest standards of trustworthiness, quality and value.” It was an emphatic damning of DEFRA.
The full letter from the DG for Regulation to DEFRA can be seen at https://www.statisticsauthority.gov.uk/wp-content/uploads/2016/07/Letter-from-Ed-Humpherson-to-Ken-Roy-140716.pdf

This is a serious issue on a number of
fronts. First the figure itself. It has already appeared in an official “state of
the industry” document in the House of Commons library, which all MP’s – and
anyone in the world, in fact – has access to. It shows that your price is over
5p more than the reality for most farmers! It is also known that some land
agents are using the figure to justify rent standstills or even, remarkably,
increases. That’s instead of what should be the case now, which is rent
reductions.

The second major issue relates to AHDB
“having no influence with DEFRA”. Blimey! Its recent post-referendum headline
was “AHDB leading agriculture through Brexit!” As Chris commented, “if AHDB are
leading they way on Brexit negotiations with DEFRA, and it can’t influence
change on such an idiotic figure as this, then God help us!”

AHDB’s market intelligence budget is massive,
and with levy payer’s money it is supposed to solve market failure. Instead it
did nothing to rectify a situation whereby DEFRA had monumentally screwed-up on
basic UK monthly milk price reporting, and “materially misrepresented” the
facts.

Perhaps the real issue is that DEFRA
is in full control of AHDB and is instructing it to toe the line! With humbled
AHDB chairman Kendall having led the farming “in campaign” for Brexit (who
failed to have much influence on farmers at all, it seems), and with George
Eustace who led the “out campaign” (and won) keeping his job at DEFRA, it will
be very interesting to see how much influence AHDB really does have going
forward.

IP
Dairy Farmer Article – July 2016

At
the recent DIN (Dairy Industry Newsletter) Conference, which had the title
“Managing the Extremes of Dairy Market Volatility”, David Dobbin, the current
but soon to retire CEO of United Dairy Farmers, commented that farmers must to
be able to survive deep and extended milk price cycles, and that this current
down cycle is set to continue into 2017 if not 2018.

He
also stated that the survivors will have either low cost or production, or deep
pockets. Those with high debts and/or high cost of production won’t survive,
and this unfortunately means some of the most efficient who have ended up in
the wrong place at the wrong time.

Conference
speakers and some delegates were asked by me for their predictions and
forecasts as to what the “average” farmgate milk price is likely to be in the
next five years, and the answers ranged from 21 to 25ppl with most in the 22 to
23p bracket. This is exactly the price I believe farmers need to budget on.

The
European dairy industry has changed since the end of the 30-year quota regime,
during which time farmers couldn’t respond to increased milk prices. Now 28
member states can respond to milk price signals as quick as anyone in the world
and whether you like it or not the likes of The Netherlands and Ireland intend
to fully exploit this opportunity. With quotas gone the only output control is
the price. But this hasn’t worked during this downturn yet!

At
the Conference Jim Bergin from Glanbia, who processes a third of Ireland’s
milk, amplified the Irish (ROI) target to increase milk output by 50%. The
example he used was that the average producer in ROI has around 60 cows. To
expand the typically mixed farms simply cuts beef back numbers and put an extra
six cows on a year for five years. At the end his milk output is up by more
than 50%, especially so when combined with genetics and technological
advancements. Consequently the 50% target is one they expect to exceed by
2020.

Across
the world different dairy organisations and processors are keen to support and
relieve a little of the pressure this crisis is putting on dairy farmers and
their families at a time when they desperately need it. For example Glanbia is
supporting farmgate milk prices by €23 million (at a rate of 1 cent/litre). In
Victoria, Australia, there is a $1.5 million (£750,000) support package in
place, of which almost £500,000 is directed to counselling services for dairy
farmers. My recent involvement in the Dairy Allied Industry forum was in the
hope AHDB would acknowledge that funding in this area is necessary, and could
help save families’ marriages and lives. This funding, alas, has not
materialised and AHDB dairy decided it wanted to focus on better returns,
improved feed utilisation and producing the right milk for your contract - as
is the case with its current series of workshops. It’s not the key message
which came out of that meeting so far as the majority of the delegates present
were concerned, including David Handley.

I
know I can be accused of being a stuck record but some farmers have to read the
tea leaves and decide whether they have a profitable future in this industry.
Only recently I was interviewed by BBC Radio Cumbria along with an anonymous
South Cumbrian Farmer. He claimed his average milk cheque was just over £9,000
month and his “essential” average bills £14,000 month with another price cut
confirmed for June. His position is simple to analyse, because his milk cheque
needs to increase by a whopping 50% just to breakeven and pay his essential
bills. Whether he is on 18p or 21p his milk cheque will NOT go up by 50% in
2016 or 2017 to cover his outgoings on a monthly basis. He is digging himself
and his family a very big hole and must make radical changes or he and his
family will continue to haemorrhage cash and asset value and be extremely
pressured. He, like many others, needs some independent guidance as to the
right road for him and his family to take. That’s the sort of help I hoped our
organisations would champion. Again at the conference John Jordan, CEO of Ornva
(formerly The Irish Dairy Board) stated that “Everyone has a duty to support
dairy farmers in this crisis.” He is right.

Recently
there has been discussion about member state compensation to farmers who reduce
milk production. In my opinion it would be a nightmare to police, and won’t
have any impact on the huge financial hole many farmers face. In the UK one
group is even proposing getting 20ppl compensation for litres NOT produced! The
problem here is that while the EU have approved the measure it is down to
member states to provide the funds from national coffers, and there is Bob hope
and no hope of the UK coughing up even so much as £1.

The
consensus at DIN was that the troughs are getting deeper and appear to be on a
three-year cycle. Volatility is increasing and pre 2007 SMP prices varied by +
or – 10%, but now it’s close to + or – 50%.

Futures
markets might help. They aren’t for farmers but they give better early warning
signals than some of the other rubbish farmers are presented with. It’s a topic
I will return to at some stage.

On
the second day of the conference there was almost a beauty parade of big
hitters giving their views on the industry and the direction of their
processing businesses, pointing out that neither processors or farmers are
making money. All of the speakers with the exception of one, Andrew McInnes of
Muller, referred to the financial pain their supplying farmers are
experiencing.

However
while the three co-operative head honchos (David Dobbin, Jim Bergin, and Peter
Giortz Carlsen of Arla, focussed on inadequate returns to farmers McInnes did
catch my eye when he said his question to suppliers is “what are you doing
differently?”. He stated that most give no answer. It’s likely to be the same
for a significant number of dairy farmers who sadly keep plodding on, burying
their heads in the sand hoping things will improve. They aren’t prepared to
play their part and make any changes to become world competitive and profitable
and will, in many cases, wither on the vine and loose more than money.

Comments
to ianpotter@ipaquotas.co.uk

IP Dairy Farmer Article – June 2016

Good news! Milk production is easing
across the UK, and most importantly, across Europe and globally!UK volumes are dropping by 4% and 5% against
last year, equivalent to around 2 million litres/day.Futures markets and auction results are
slowly trending up, and WMP and cheddar prices are nudging North. Cull cow
numbers are up 20% in March and, according to AHDB Dairy, are at their highest
level since 2006 - the time OTM cattle were allowed into the food chain.

We are, I believe, at 6.35 on the
clock having already passed the bottom at 6.30. The trend is now up, but
remember intervention stocks are worringly high and the increase in Europe SMP
intervention stocks is scary !It’s
only a slight U-turn and a distant glimmer of hope in a market, which some
analysts are now predicting will not pick up until late 2017 or early
2018.Remember a pick-up does not, in my
opinion, mean a return to 30ppl.

There is now the option for EU member
states to provide state aid to dairy farmers for up to three years to a maximum
of €45,000 (£35,000+), which could be directly linked to a freeze in production
on a farm. There is even talk of financial incentives to those who cut milk
production. Just don’t bank on DEFRA doing this and paying out any money!

AHDB has published an activity review
report, which confirms it has a lot of work to do. But at least it accepts its
shortfalls and recognises it needs to demonstrate a return and a benefit on the
investment made by levy payers.

Under the heading of “Communication”
the report refers to “A very strong view expressed across producers about
AHDB’s communications…”. On reading this one dairy farmer commented that AHDB Dairy
“is guilty of producing masses of information, which us dairy farmers pay for
and don’t use or understand. It’s about as much use to my business as tits on a
bull”.

The report also acknowledges that “the
organisation should provide more forward looking market insight and analysis in
addition to historic price reporting”. That’s a bulls eye for me, and I, for
one, was very unhappy that AHDB Dairy shied away from giving dairy farmers
strong signals on dramatic milk price falls months before farmers realised. It
remained in hibernation and failed to give notice to farmers to prepare for a
downturn while others, including me, were lambasted for talking the industry
down.

AHDB Dairy has to think differently,
be brave and communicate the signals - both positive and negative - to farmers
whether the medicine is tasty or bitter. Just for the record, and no doubt to
the delight of one or two top brass in AHDB Dairy, I have confirmed that if
they communicate more hard hitting commentary on the industry I’ll shut up shop
and retire! Finally, on the topic of export development the organisation has
realised it needs to do signficantly more work and the budget has been boosted.
That’s good news too!

First Milk’s fortunes, under Mike
Gallacher’s captaincy, have improved and in the last year the business has
moved from a £20m loss to a £4m surplus, before one off restructuring costs.
Critical to this is the cost savings made. Yes there have been milk price cuts,
but mo more than others and its price is comparable to other commodity buyers
now.

Gallacher inherited hundreds of
members who desperately wanted to leave First Milk but couldn’t, and staff who
feared they would have to. It was perilously close to having its doors closed.

But the senior management has focused
on how it can mitigate the impact of the market on members’ milk price – a
tough job in the current market.His
predecessors got away with paying one of the lowest milk prices for years, but
at least today the business no longer suffers the pain of balancing on behalf
of the industry now that it is out of Westbury. He has made the big plays and
now the focus needs to be on the simple stuff. The signs are cautiously
encouraging. He will have to continue to find further cost saving and
efficiencies across all areas of the business, which will be tough and painful.

The recent move by Tesco to dump its
COP cheese model, which automatically encouraged farmers to increase
production, has received limited analysis. When TSDG piloted its cheese group
with Parkham Farms’ producers in 2012 the premium was 1.6ppl above a ‘top
secret’ undisclosed basket price. Today it’s allegedly 2ppl.

Parkham backed Tesco to move from COP
as it was convinced the new model is more sustainable and, on balance, I tend
to agree. Yes, the move is a financial blow to the farmers but sensible farmers
involved with Parkham and First Milk are likely to support the move and want a
long-term direct relationship with the retailer, and will listen to
Tesco’ s requirements.The reality
is that if Tesco offered the same 2p milk for cheese premium today First Milk
and others would grab it with both hands.

But the Tesco move to have dedicated
First Milk suppliers to the Haverfordwest Creamery, and the switch of 200
million litres of liquid milk from Arla to Muller, sends a clear signal that
Tesco doesn’t want to share their premiums across all co-op members.

So where does the cheese model leave
TSDG liquid suppliers currently on a COP model, which is now not market
related? The producers involved will fight to retain the status quo, but will
surelyacknowledge the warning signs and
clear direction of travel in that Tesco wants to slash the costs of its TSDG
pool. And quickly!

It may pay well at the moment, but the
price gap between the non-aligned is narrowing fast! When Arla opened up a
final window of opportunity for its members supplying Tesco to leave the co-op
and become Tesco directs, few farmers actually jumped ship. For me this sent a
powerful message that those farmers joined Arla to be part of a 13,000 strong
EU co-op which owns brands and invests heavy in new product development. They
declined the invitation to have all their eggs in the Tesco basket and I reckon
they were right!

After a clamour from the industry,
AHDB Dairy have revised their three-year strategic plan and given the green light
to invest up to £3.5m in market development. The result is they are now working
with Dairy UK to maximise the bang the industry gets for its combined bucks for
this area.

The money has come from freeing-up
some of the levy money, dipping into reserves and squeezing cost savings, and
it’s a great start. The two organisations are aiming to put forward a robust
plan to support an application for EU co-funding by February 2017, which could
boost total funds by 70% (80% for a multi-country campaign) and could create a
fund worth more than £20 million. Now that would achieve something REALLY
positive! That’s, er, provided the UK doesn’t go it alone on a Brexit!

Securing the funds won’t be easy, and
it will be a competitive process, but promotional funds is what many producers
wanted to see; is (I think) essential, and is a joint collaboration. As Minette
Batters commented recently, though, such development money has to be targeted
at specific areas, and the industry “has to inform its customers why they should
stay loyal to buying British Red Tractor Food.”

Heaven knows we need to do something
to encourage consumption and to promote our high quality dairy products both at
home and abroad - if only to defend our corner against the Government’s (first)
bombshell of the Eatwell Guide that stunned the industry last month. Just when
most dairy farmers are struggling to stay above water because of the economics
along comes the Government to dunk you under with new National dietary
guidelines for health professionals, stating the recommended dairy intake
should be halved. So instead of promoting and celebrating our great products
there is a new public health campaign to ensure consumers eat less dairy, we
sell less and the industry suffers more! With friends like that who needs
enemies!

My recent articles have produced a
much appreciated flurry of mostly short but well thought out emails. All bar
one agreed that producing more milk to maintain a high value milk cheque was a
financial disaster. Sadly one reader stated his cost of production was 21ppl
and his “modern day Robin Hood of a middle ground processor milk buyer” was
intending to pay him 9p on his B litres. He commented “I don’t understand how
cutting my production would make me financially better of.” It would be
interesting to see him present his case to Peter Jones and his associates in
The Dragons Den. They would take him to the cleaners!

Next month I aim to review the
multitude of emails I received under the heading of “is there life after
milking cows, and does giving up mean you will be badged as a failure.” (Which
it doesn’t!) In addition, I aim to look at the significant role women play (or
should play) - and I don’t mean cooking, cleaning and ironing for grumpy dairy
farmers. As I’ve said before, behind every successful man there’s a woman
booting him up the arse.

The drop in average farm gate milk
prices between 2014 and 2015 is 7.2ppl and still increasing. That’s as
near as dam it at £1.1 billion cut in turnover for dairy farmers in the last
twelve months alone. Note for every 1ppl drop the cost is £150million.
That’s some serious money. For those of you anxiously looking to spot the first
signal that UK processors believe we have reached the bottom watch out for one
or more of them announcing that prices are fixed for the next two or three
months. That’s when they have calculated we have hit rock bottom.

If the Eatwell Guide was Bombshell
number 1 last month then Number 2 was the utterly jaw-dropping number crunching
by DEFRA where, for February, they added Arla members’ 13th payment
to record a milk price increase for the month of 2.48ppl. Despite widespread
ridicule and anger DEFRA dug their heels in and stood firmly by their
calculation. But despite it making them a laughing stock it’s serious as these
figures feed into the Commission’s Milk Market Observatory.

The Intervention Board made a similar
gaff in 1996, however they did subsequently issue an apology. Well many in the
industry are up in arms at DEFRA’S refusal to back down, and also at industry
organisations for being impotent to change a wholly misrepresentative
calculation. We will have to see what happens ultimately because my often
partner in crime and industry hack Chris Walkland has lodged an official
complaint with the National Statistics office, which is presently under
investigation (pending, probably - and knowing civil servants - it all being
swept under the carpet.)

According to my calculation if you
strip out the published Northern Ireland February farmgate milk price of 18.54ppl
the GB February price, on DEFRA’s methodology, was a jaw dropping 27ppl
(26.9ppl). That’s the aligned price PLUS the non-aligned, but that’s another
segmentation story for another article.

That brings me onto current league
tables, which are today simply “smoke and mirrors” and in no way reflect the
real situation. Even if we ignore the ridiculous DEFRA figure we have aligned
prices making the average price look significantly better than it is. Then
there is alphabet pricing with A, B and even C milk prices, yet published
prices do not reflect the real money received. I accept it’s a big project but
surely its high time there was a wholesale review of our published milk prices
to ensure they are real and relevant.

Finally, and to try and brighten up an
otherwise gloomy industry, I conclude with a genuine complaint to a local
council: “The toilet is blocked, and we cannot bath the kids until its
cleared,” they wrote. Brilliant!

The recent announcement by the EU of a
doubling of the intervention ceiling for SMP, plus the additional 40,000 tonne
ceiling increase for butter, are useful market management tools. However, at an
Intervention farmgate equivalent price of around 14ppl or less this is unlikely
to encourage many European dairy farmers to produce more milk but will help us
get through the flush, hopefully avoiding distress milk returning under 10ppl.
It’s a safety net that is significantly below any UK farms cost of production.

Intervention buying for the Commission has
previously proved to be very good business. Last time it offloaded its stocks
it netted around €1.5 billion profit, and I hope it delivers similar winnings
this time so they can be invested back in the sector at some stage.

Meanwhile, the spring flush
is rapidly approaching and our near neighbours
in Southern Ireland has already declared that it’s highly unlikely it will have
sufficient processing capacity to handle all its milk and it will have to ship
some to the UK. Meanwhile the UK processing industry has calculated that we are
unlikely to have sufficient capacity - hence the talk of distress milk at 6 to
8ppl. What a mess!

Even the most efficient sharp-eyed cost
conscious non-aligned dairy farmers are struggling with a milk price under
19ppl.For most, continuing to produce
milk at under 19ppl means more losses, which will simply take longer to recover
from. And remember, come April, some farmers might be receiving only 11ppl!

On the back of a high milk price, a lot of
dairy farmers found expensive ways to produce more milk. Sheds were erected and
land rents and land values rocketed. It was a great party when prices were
high, but we’ve one hell of a hangover now!

On top of this the more competitive milk
producers in Ireland, Holland, Germany and Denmark are unlikely to pull back on
production and will continue to grow their dairy businesses. This leads me to
conclude that this crisis is more of a structural change in world dairying and
NOT simply volatility. I believe we will eventually see a five-year “average”
non-aligned milk price to 2021 of around 25ppl. In fact it could be quite a bit
less than 25ppl, having averaged 28ppl in the past five years.

I don’t want to be negative but it is better
to be a realist than a fantasist. The worst any commentator or analyst can do
is to give dairy farmers false signals, to build up expectations that they can
ride it out, and suggest a recovery to near 30ppl is down the line. It’s not
any time soon!

In fact I’d say that farm gate milk prices
have not reached the bottom yet, and there is certainly more pain on its way
especially in the cheese world. However - slowly but surely - falling milk
prices are starting to control supply.

It’s going to take skill and guile to manage
this situation at farm level, and some different disciplines will come to the
fore. In one instance I know of a bank agreed an extra facility with a farmer
to pay his silage contractor, but only if the bank paid him direct.

A period of 12-18 months at under 20ppl will
take several years to recover from. It’s for this reason I have suggested to
AHDB that as well as milk price league tables what’s required is a tool farmers
can use to calculate a worse case scenario. Call it a “What if and a milk price
stress test”, which could give answers to questions such as “if I receive 18ppl
for 18 months what average price do I need over the next four years to cover my
average COP of xppl…”.

My last article triggered the most responses
I have ever received in 25 years of writing!

Several respondents were concerned that some
of the allied industry representatives, who are asked for help and advice, will
shy away from suggesting that exiting the industry could be the best outcome
for some farmers. Others aired concerns that a delayed decision would seriously
erode net worth, that family relationships would break down under the stress,
and the feeling of failure would weigh strongly on individuals (or even worse there
could be lives lost).

Most
applauded the article’s probing questions which most dairy farmers,
irrespective of size, would benefit from answering. Another said that it would
be more useful to dairy farmers in today’s harsh economic environment than some
of the other “almost irrelevant information” they receive.Husbands and wives emailed me (with some in their 40’s and 50’s) saying
that fathers, mothers and in-laws still dictate what happens in the business,
and exert pressure on the farming family.

And I was delighted that the overwhelming
response was the recognition that family, health and happiness must come before
the cows, the farm and what parents might want.

Sitting down with the family is key, and
having a third party involved in family meetings to me is essential because
they bring a structure to the decision making and in their absence the
likelihood of fur and feathers flying within 30 seconds of the start of any
meeting is usually high.It doesn’t need
to be a professional, and can be a trusted unbiased family friend.

How would I start if I had to do it?That’s easy:I’d give family members a pen and a blank sheet of paper on which they
write what they want to achieve in the next 10 years. Then I’d compile the
lists, find common ground and pin the combined list up in the board room (AKA
the kitchen) and everyday work towards the delivery. Writing the list is step
1, step 2 is far harder to implement!

The crux is, though, that if some farmers
don’t decide on their future then their future might be decided for them. Many
face the prospect that they will be removed from the industry, and going
voluntarily might be less painful than being forced.

To conclude, I leave you with the words of
one reader: “There is life after cows. It might take a while to figure it out,
but there isand more often than not,
it’s a happier life”.

For the
majority of the remaining 88% of you it’s extremely tough indeed, and many are
fighting for survival. One struggling farmer recently emailed me to say “the
non-aligned continue to work like silly b***ers sinking deeper into the s**t
while all around us the aligned walk on water at our expense”. I don’t
disagree.

Today,
there is an ocean of information pushed at dairy farmers, most of which is
pretty basic, and telling them what they should be doing to stay in business,
how to cut cost and be more competitive. One document which caught my eye was a
set of questions emailed to me by lawyer William Neville of Savills.Having carefully studied these questions the
way ahead for a dairy farmer and his/her family should be clearer. The
questions were:

1.Have you the mind-set to take control
of your own destiny?Or do you feel
bewildered and a hopeless victim of circumstances?

2.Is dairy farming right for you and
your family?What are your plans for
inheritance?Are you doing the right
thing for your non-farming family members?

3.What will you need to invest in your
facilities in the next 10 years?How
will you fund it and justify it?

4.Do you REALLY know your cost of
production?

5.What is the realistic future milk
price?Are you looking at the evidence
or living on hope?

6.Have you worked out whether you are
producing what your milk purchaser really wants?i.e. Are you maximizing your return under
your milk contract?

7.What are you really paying yourself
per hour? What can you afford to pay yourself and remain competitive?Would you be better off paying someone else
and trying to add value to other parts of the business? What are your other
skills? How much could you earn off farm part-time or full-time?

8.Might there be a day when you will
find yourself stranded without a milk purchaser at all?

9.Are you buying all your inputs at best
prices, and when did you last check alternatives?

11.Have you got your eyes open for niche
opportunities even if they start small?

12.Do you have the right skills for the
technologically and market driven global dairy industry of the future?

I suggest every non-aligned farmer living in
the real world goes through those questions with your partner and family
members.

Today, most dairy farmers face the most
financial pressure they have ever encountered, with income crashing. Individual
performance may have improved, but workload and bills are increasing.

Dairy farming and life on a farm is full of
pleasures and challenges and for many it has been a dream of a profession and
an ideal place to bring up a family. But now it’s time for many to face up to
the fact that their lifestyle is under threat and it could be the end of the
line.

It’s no longer possible to succeed by getting
up earlier, staying out on the farm later and pushing yourself harder. The number
of hours you work outside will NOT determine your success or failure as a dairy
farmer, but it will push you and precious relationships to breaking point.
Faster or harder working hands are unlikely to turn around a loss making
situation, and to those of you who have asked me when prices will return to
normal, and quoting figures of 30 to 35ppl, I say this: you could be in
dreamland. Nothing, but nothing, says normal will be 30 to 35p. Normal could as
easily be 24p going forward.

Too many farmers I know, if they were honest,
are married to their cows and the farm and in second place comes the children,
followed by the wife and the marriage unless (as in some cases) the dog comes
in at number 2 position!

At what cost do you intend to keep the family
dairy farm going? Are you prepared to sacrifice everything – for example your
own health and happiness, your family’s happiness, your marriage or will you
sacrifice the dairy unit to retain them all? It’s a massive decision to give up
dairy farming but it’s not the end of the world. It’s more you taking control
and having a change of direction with new opportunities and challenges. Sadly,
recently I have heard of dairy farmers cashing in their pension just to keep
the wheels turning. Please… don’t be afraid of change, its part of surviving.

Oh, and if you are aged c.40 plus and still
reporting in to your father, who realistically still looks upon his son or
daughter as a glorified farm worker who still needs his guidance, then my
advice is to not put up with this situation and get out now.And don’t get me started on those who have
never had a proper holiday away from the farm, thinking that 30 years or so of
consecutive milking is a badge of honour. Frankly that is tragic.

One dairy farmer once said to me: “When I
drive my car up hill I simply push down harder on the pedal.” To do that in an
attempt to maintain your identity and dignity as a dairy farmer is unlikely to
succeed. Another reader asked me this: “Do I listen to my heart, my
accountant/consultant or my family?”Easy answer this one: your family.

The questions and this article won’t give you
all the answers but I hope it stimulates debate and questions for you and your
family.Remember, you are NOT letting
anyone down if you change and get out of dairy farming. But you will be letting
you and your family down if you don’t change and do the best thing for your
family. Whatever you decide to do, good luck and I hope it works out for you.

By May, at the very latest,
I expect most non-aligned farmers to be receiving under 20ppl as milk prices
continue to head south. The wholesale re-structuring at farm level will happen
this year.One 50m litre group of
farmers in South West Scotland look set to receive around 12ppl from April
onwards as their milk has no alternative but to head down the M5 to go into
powder. Look at the maths, IMPE (Intervention Milk Price Equivalent) is at
14.5ppl less 2.5ppl or more for transport and broker fee. This nets back to
12ppl.

Dairy farmers continue to
score own goals by working on the assumption that producing more litres and
spreading the cost is a solution. It’s not and is a soft easy option compared
to tackling the much tougher task of how to cut your ppl cost of production,
and do things differently. More milk means more labour, machinery repairs and
fuel.

As The Archer’s David and
Ruth Archer sell the herd to buy a spring calving herd one critical mistake by
the researchers is the omission of not even mentioning their change in milk
production to their milk purchaser.How
many others farmers have failed to mention their plans to their buyer? Lots!

In a recently published
analysis Ireland and Holland accounted for a whopping 54% in EU increased milk
production from April to November 2015.Even now there are no signs that European milk output is slowing down.
The take-out message from this to those who don’t understand is simple: if milk
production continues to increase the farm gate milk price must be acceptable!

Now that First Milk has a
new governance structure it seems to be all systems go in a new direction. Of
the Directors who were in place a year ago only two remain, both of whom are
Farmer Directors. In my opinion good governance with good management triggers
better performance and hopefully results that First Milk farmers dream of.

Can Mike Gallacher fix
First Milk? At the moment he is finishing driving his big muck tracker and
scraper and cleaning up the disastrous decision-making by the previous board
and management. He has succeeded in improving previously wrecked relationships
and opened communication links with competitor processors.

Exiting Westbury will be
worth several £millions each year to the firm.If only Westbury was in Cumbria! Its milk pool is shrinking naturally
and Gallacher has a lot of work still to do, in particular deciding where the
long-term future for each of his milk pools and the supplying farmers might be.

Now AHDB Dairy (again).
Sigh. Sorry! I wasn’t going to write about it this month but the two articles
AHDB boss Jane King and Board member Janette Prince wrote last month has forced
my hand. King rightly gave a robust defence of her organisation apart from, er,
not mentioning the organisation only received six applications and conducted two
interviews for the top salaried position as Head of AHDB Dairy. That is simply
not good enough, and she shouldn’t be surprised at the criticism it attracted.

Janette Prince’s comments
were also interesting.Now I live within
walking distance of Janette’s farm. It’s a good walk, but nevertheless it’s in
walking distance. And yet how many times has she been to see me in the three
years she has been an AHDB board member? Once. And she sent one email in
December 2014. During this period she has received 165 emails from me with my
bulletins etc. My point? Come talk to me! By its own admission AHDB Dairy needs
to up its game on communication. This wouldn’t be a bad place to start! She
asks in her letter for “Mr Potter to provide some constructive criticism and
how I would spend the levy”. Well, log onto www.ipaquotas.co.uk for my comments in
relation to the AHDB Dairy Business plan and you’ll see!

AHDB Dairy is attracting a
lot of questions these days for sure, and there is no surprise that MP’s are
taking an interest in its spending plans. Some appear to be showing signs of getting
their teeth stuck into what AHDB is, or isn’t, doing.

The latest projects from
AHDB Dairy to cross my radar came from one of its so-called Market Intelligence
Research Analysts.In a circular email
sent to processors AHDB will spend money on updating a 7-year old processing
capacity map last complied in 2009 by retired dairy chief Donald McQueen.In addition, they want to provide guidance
about the UK dairy industry’s processing capacity, especially re coping with
the spring flush.

Processors I spoke to were
flabbergasted that these are considered priority projects. One used the words
“that AHDB Dairy was blowing the candles out whilst Rome burns” while another
commented “it is like an ocean going supertanker, going at speed with no idea
where it’s going, whether it’s going to hit something and unable to change
direction.”

I know I’m going to be
criticised for having a witch-hunt but before anyone does ask yourselves
whether there is sufficient scrutiny of AHDB’s spend, and whether the projects
being done fall under the remit of solving market failure, or equipping levy
payers with the information and tools to grow and become more competitive and
sustainable. If they don’t then AHDB Dairy shouldn’t be doing them! Milk prices
for most could be less than 20ppl. How on God’s earth will a new map help?

If anyone doesn’t like my
column then tough. It is not compulsory reading and I won’t lose any
sleep.I have more allies than critics.
One reader commented: “Your article provokes a great deal of thought, yet there
are people out there (so called industry leaders) spending energy criticising
your comments instead of acting on what you write”.

At the Semex Conference,
David Dobbin, Chairman of Dairy UK, echoed a message being sung by just about
everyone in the UK dairy industry when he said “we need to develop the demand
for British dairy products and invest in promotion both at home and in target
export markets.”

None!
That’s the number of reasons UK dairy farmers have to be cheery and optimistic
for 2016. There, you may as well have it straight. The outlook for milk prices
in 2016 is grim. Until Europe cuts milk output any recovery is a distant dream
- unless nature intervenes.

It’s a
fact that with the EU28 responsible for 25% of the world’s milk production we
are crucial to the global dairy market, and many argue that until we cut
production there will be no recovery.

Look at
the facts: UK milk production is at a 30 year high and rising; EU28 production
is at record levels; there’s a strong pound; intervention stocks are rising;
global markets are under pressure; International trade/demand is lukewarm; UK
herd and dairy replacement numbers in the pipeline are increasing; and oil
prices are at an 11 year low (which affects demand for dairy products in oil
exporting countries).

It’s
time to buckle up, cut cost, and refrain from chasing volume. Now more milk
equals less money and less equals more.

Three
years ago new blood was entering the industry as new units were erected. Dairy
farmers displayed exceptionally high levels of confidence, predominantly driven
by high commodity prices, and eye watering milk demand and price forecasts. Now
it’s Armageddon. One unknown is how long the banks will sit and watch before
they take action.

This
time farmers can’t simply carry on optimistically, believing it’s going to
improve soon. This will have to be a supply-led recovery, with seismic on-farm
consolidation.

Yes, many
farmers will need help to be profitable, which equals becoming internationally
competitive, (not just on price alone) and reducing cost. Consultants and the
like will need to shine a light on the industry and play their part in the
typhoon of change. If we don’t change we will simply surrender to the Irish,
whose aim is to be the New Zealand of the EU28. As Andersons 2016 Dairy Outlook
commented “Only the most efficient farmers can achieve a long and sustainable
future at current milk prices.” And as David Dobbin, Chairman of Dairy UK,
recently stated: “Do we ease back on
production or find new markets?” and
“we need to get better not bigger.” We need thinkers, marketeers and pushers
because it’s set to be tough.

Recently
questions have been asked whether AHDB’s Dairy boards’ plan and vision for our
industry is aligned with the interests of its levy paying clients.Many believe it’s time it really listened, rather than continuing
to spend on what it thinks farmers need. It has just had a consultation round,
so we shall see!

AHDB
Dairy must not, in my opinion, predominantly focus on production even if doing
so swells its coffers. To most farmers it appears to be a closely guarded
secret as to how AHDB Dairy selects where the levy money goes to give farmers
the biggest return for every £1 invested.

Take
its spend on exports, for example. There are a number of farmers who want AHDB
Dairy to up its game in respect of assisting the industry to sell its range of
dairy products to new emerging markets, as well as help many to cut costs in
order to compete in this harsh environment. We have to export, as the
additional demand for our milk will simply not come from the EU. We have to
look outwards not inwards, in particular to
China, Asia, India & Africa.

Three
of our dairy processors recently attended a Beijing trade event - Daioni Milk,
Freshways and Woodcocks. One of the meetings involved a young Chinese dairy
trade envoy who, on meeting UK processors, stated “I am surprised to see you here because dairy farmers in the UK are
constantly protesting and complaining about low milk prices. Why come here if
your industry is not internationally competitive?” Is that really the image
we have created, where we are not regarded as internationally competitive? And,
on hearing this comment, another said: “What’s the difference between a British
dairy farmer and a baby? The baby will eventually stop crying.” Dear, oh dear.

The
processors who attended the Beijing event said they desperately require
specialist dairy expertise to kick open the doors which will drive exports to
new markets. And yet AHDB’s Dairy current budget to 2019 is the only one of all of the AHDB sectors that has
zero investment for exports! Why? How is this justifiable?

Now
First Milk. Since Mike Gallacher took the reins I have yet to find where he has
put a foot wrong (although, admittedly, I’m not at the receiving end of its
milk cheque). First Milk is not quite at the point where it can claim to have
turned the tide in terms of retaining existing member patronage and support,
but perhaps there are a few very small glimmers of light in this long tunnel.

The
co-op’s milk price is unquestionably poor and the gap between it and its
competitors needs to close. But for some members the fact they still collect
(and pay) for all the milk produced is a bonus. Others are less fortunate and
are under notice with nowhere to go, and having no control over their
destiny.

Meanwhile,
a handful in the industry believe I am an evil spirit and cannot comprehend why
I should have an opinion on dairy industry topics. Quite why it has taken them
25 years (the time I have been writing) to draw this conclusion I don’t
know!

Well I
can confirm that (as much as it will come as a disappointment to some) I will
not quietly slip away in 2016 and intend to take the advice of the gritty
Scotsman Jim Brown, who emailed me recently concerning his thoughts on AHDB
Dairy: “I like the way you call a spade a big f***ing shovel!Keep at it,” he said. “As Corporal Jones on
Dad’s Army said: They don’t like it up ‘em, Sir.”

Things are on the up! Alas, though, not milk
prices. It’s the level of fighting, bickering, name-calling, threats and plotting
between farmers I’m talking about. Farmers working AGAINST other farmers, for
example, exemplified by one farmer who, for some inexplicably stupid reason,
stuck a spanner into the incredibly successful Morrisons “Milk for Farmers”
brand.

Whilst FFA and others push retailers hard for every
last 0.1ppl a Mr Richard Brown - a farmer “with a lifetime experience” from
Derby, and believed to be aided by a dairy nutritionist from Nantwich, has
complained that Morrisons has misled the public, through the fact Arla is a
co-op and not all of the extra money goes to British farmers.

He was dissatisfied with Morrison’s position, so
complained to the Advertising Standards Authority. In addition ‘a shopper’, named
“Mr H”, but possibly Brown himself or the nutritionist, sent an email chain of
his dialogue with Morrisons to The
Farmers Weekly which regurgitated it in full under the headline “Morrisons slammed over ‘misleading’ milk for
farmers?” The opening two words of the article were “A supermarket
shopper.” On top of that, and much more significantly, The Sunday Telegraph picked-up on the article and printed the same
anti-Morrisons angle.

How the hell did just ONE complaint result in The
Farmer’s Weekly deciding to publish this article and potentially undermine
everything going on in the industry to get more money from retailers? It is
irresponsible, and FFA and all other dairy farmer organisations should ask
questions of it.

Thus, while some dairy farmers work hard during the
day and stand on freezing cold, wet picket lines at night to try and get extra
money, others are undermining successful initiatives. It is staggering! Perhaps
Mr Brown & Associates would like Arla to repatriate back to Denmark the share
of the profits from Lurpak, Castello and other EU retailer’s money which UK
farmers enjoy a share of. The fact this happens was conveniently overlooked in
The Weekly’s article, though.

Now, it’s nearly 2016, so what do I predict for
next year? Following the sale of its liquids division to Muller I bet 2016 will
see Dairy Crest’s remaining cheese business taken over.My money is on an Irish flag flying over
Davidstow, with 2nd favourite being a French, and a German flag more
of an outside punt. If I were the Irish I would want the Cathedral City brand
because, as I have previously said before, the brand doesn’t actually have to
be made with British milk.

Milk price wise, you all know it is going to be a
long haul. Global production needs to fall in line with demand, but it is
currently still increasing. The EU28 are producing 3% more milk, for example.
There is no shortage of milk in the world, and the buyers know it.

For First Milk 2016 will obviously be a very tough
and pivotal year. Last January CEO Kate Allum stated that “First Milk members
should be confident” and that “the business is in very good shape”. She didn’t
tell the truth, though, and the financial situation was serious with no basis
for any improvement. The first hurdle is for it to negotiate its re-financing
with its main bankers Barclays & Lloyds, but it is confident. I wish
Gallacher and his new commercial team the very best. May the force be with it!
(to quote a film out soon.) For the members I guess having your milk collected
and being paid for is a bonus compared to those who have no contract.

Finally, AHDB Dairy. And I make no apologies for
being like a terrier with a rat on this. I am getting a LOT of emails on the
subject. A former vice chairman of a major farmer organisation sent a two word
email (which summed-up what many others went to great lengths to say): “Scrap
it”, he said.Another stated that if
AHDB Dairy were privatised or the levy was voluntary it would struggle to stay
in business.

On recruitment, for example, I was surprised to
learn that AHDB Dairy do NOT follow Government guidelines (either by law or in
principle or spirit) and the Board decide who is employed and on what pay
package. My concern was whether its recent appointments process had followed
approved guidelines, were fair with open competition and that there was
accountability. I was, for example, utterly staggered to see that it will
“produce a recruitment policy shortly”. In other words it ain’t got one
NOW!This is unbelievable given AHDB’s
total wage bill is £22 million – a whopping third of its income!

The job as head
of AHDB Dairy was ONLY advertised on FWi (Farmer’s Weekly Interactive) and
promoted via AHDB’s internal intranet
and website for three weeks, as well as AHDB alerting sector board members and
senior management to the position. Not surprisingly this flaccid advertising
campaign resulted in only SIX applications, and just TWO interviews, and in
front of a panel of four AHDB senior people. Interestingly, and more
professionally though, a further nine senior director and senior positions were
more widely advertised in the Irish Farmers’ Journal, The Economist and
Guardian online.

Its duty must be
to strive to find the best talent in the country. In its response AHDB stated
that “The online advertising route (for the Strategy Director for Dairy) was
pre-evaluated as the most cost effective route for these parts.”Maybe so, but cost effectiveness isn’t what’s
wanted here. The best talent is! It is little wonder that the acronym “FOP” is
now gaining traction to sum-up the requirements for anyone who wants to get in,
or on, at AHDB: FOP = Friend of Peter! (as in Kendall, the ex NFU chairman.)

Finally, Merry
Christmas to all readers. Despite everything, I hope you have a good one.
Heartbreakingly and tellingly, I have more than one or two emails saying they’d
like their AHDB levy to go to putting more food on the table for their kids at
Christmas, or buying them more presents. And that explains why I’m like a
terrier.

Following my last article on AHDB and a subsequent
flurry of interesting emails in response, I was encouraged to look into the background
behind AHDB’s free consultancy for farmers who have a cash flow or liquidity
problem.

In order to qualify for a share of the £300,000
pot, farmers had to either be unable to pay invoices, about to breach their
borrowing limit, or have no idea of their financial current position.Of the £300,000, however, only £120,800 was
utilised, and by just 151 farmers, all of whom used the maximum £800 + VAT
available.In total 27 consultancy firms
were engaged, with one accounting for 18% of the jobs (27 forms).

Few farmers, I hazard to guess, actually knew about
the fund. However it was publicised on the AHDB website (not that anyone would
find it there unless they knew about it) and in the First Milk newsletter.
Questions have been asked whether this is the role of AHDB and a good use of
levy money; whether the cash injection helps professional farmers or was just
social help for inefficient ones; and whether the money will actually change
how they operate and/or help create the right conditions for them to prosper,
or just help them limp on for another month or two.

Yes, farmers’ cash flow is the big problem,
especially for those on a very poor milk price or with high costs. Most farmers
will be eager to receive an early, vital, December SFP payment.It’s staggering that last year 42% of dairy
farmers’ net profit came from the EU subsidy, and this year the percentage is
sure to be well over 50%.

Currently the vast majority of EU dairy farmers
cannot survive without that money, but economists like Sean Rickard regularly
highlight that part of these payments end up capitalised into land values and
rents.A few who are aggressively
competitive are quietly suggesting a dramatic reduction in EU payments would
shake up the industry and allow the competitive farmers to grow quickly. Those
same farmers also hope the recovery is slow for the same reasons. These farmers
are unlikely to back AHDB’S support fund.

The emails (from some very high ranking people too)
also suggested I probe further into recent AHDB appointments, and the process
adopted, and I certainly intend doing so.

AHDB Dairy has also recently recruited six new
members to their extension officer team.This is also on farmers’ radar’s because they are taking on more staff
at a time the industry is seeing farmer numbers reduce and processors cutting
jobs e.g. Fonterra cutting 750, Muller 486, First Milk more than 70, and Arla
100. The board’s income has increased to £7 million and along with that its
staffing. Is AHDB Dairy as lean and mean as the rest of the industry? Again,
one for it to defend.

Now to the supplementary payments from retailers to
processors, which are slowly filtering through.Many retailers stepped up to the plate but some have still done nothing,
especially on cheese where some still buy own label from all over the world.
The question I have is whether the promised money is all real and new.

Perhaps what’s needed is for AHDB economists to not
only list the retailers who have pledged support but for them to audit each
pledge. In the event they are unable to accurately determine what retailers
have paid in full, and processors have passed the money on to farmers, they
should call in Christine Tacon (The Grocery Code Adjudicator) to flex her
muscles. If no such analysis is done we will be seen as a lazy industry who
isn’t really bothered whether the money was handed over in full by retailers,
or where it went. Public commitments were made which attracted positive PR but
the money needs following and checking. For sure FFA don’t have the resources
to do this next stage.

Since I last wrote the Commission’s so-called Dairy
Aid package means €420m will be paid direct to dairy farmers out of a €500m
allocation. But this is only 50% of the Commission’s super levy income from
2014/15.So it’s not even new money!

Out of this some £26 million is for the UK and
while it’s still more money than other farmers in other sectors have received
it amounts to diddly squat on a per farm basis.Perhaps it should have been better targeted towards marketing and milk
promotion, since it is clear we desperately need it to build demand and our
market, and we’re not going to get it from anywhere else.

AHDB Dairy as it is
called now (and indeed AHDB) are certainly copping some criticism at the
moment. And so far as the dairy sector is concerned their stance appears to be evading
those who challenge them, including some dairy farmers.

One issue raised
with me by several farmers is the one of David Ball, who was made redundant as
manager of a Gloucestershire dairy unit last year. After being unemployed for a
while, though, he now has an attractive position with AHDB Dairy as its farm
buildings senior technical advisor - effectively working under his wife Amanda.
The job specification stated AHDB was “seeking an experienced person on
buildings”. However, according to comments I have received from within AHDB and
one of Ball’s friends, his Linked-In CV did not remotely mention expertise in
this area. Ok, so he worked on a farm with very big sheds, but I’ve sat in some
very big planes and it doesn’t make me a pilot.

This prompted me to
make enquiries to establish the background to the appointment in terms of how
many applications and interviews there were. The response I received was: “it’s
not information we would normally disclose”. When I responded asking whether
the position had been advertised in the Farmers
Guardian, Dairy Farmer, Farmers Weekly or the like my two
requests were ignored. Yet I am led to believe that none of these publications
were used.

Allegations of
nepotism may be uncharitable, but levy-paying farmers can be forgiven for
pondering the thought. The appointment may ultimately be a case of AHDB
delivering value for money and working smarter, and time will tell. But some
levy payers think there’s something not right there.

Aside from the
individual there’s also the issue of the actual job. Employing an expert in
buildings right now has been described to me as hiring an expert on how to blow
out candles on a birthday cake while the house burns down.A number of farmers desperately need
one-to-one help on how to exit the industry, or to involve fresh blood in their
businesses. Help here would be very
useful. But (say critics) new sheds are largely about expansion, and more cows
is about more milk. And with more milk comes more levy money. And on top of Mr
Ball’s appointment comes another job
vacancy for an extension officer with expertise in forage and grassland
management, and another one in market
Intelligence, and another senior one
in AHDB strategy (Tom Hind). AHDB Dairy now employs well over 30 people I
reckon, with the chairman on a pro-rata salary of over £80,000 a year.

AHDB’s credibility
is hanging by a thread among a lot of farmers, who say it sits in its new ivory
tower in Stoneleigh spending levy payers money on what it think is needed rather than on what levy payers actually want.

And in fact some of
its work is turning out to be deeply damaging! For example its August research
informed farmers that “there is very little connection between the price of
milk in supermarkets and the price farmers are paid.”According to AHDB Dairy this “supports the
argument the supermarket price war on milk is not to blame for the current
crisis”. Really? So there’s no connection between the amount of money that
comes in the top of the hopper, and the amount that goes out the bottom? And if
the retailers feel guilty enough to throw some more money at farmers now then
they must, by their own admission, be part of the problem! If I was a retailer
I’d have thrown AHDB’s line back at the farmers and not paid anything. Indeed you
would have expected the British Retail Consortium, which represents retailers,
to have done such research in an attempt to break the link and derail the work
of the likes of FFA.

Then there’s its
latest August cheddar price at a jaw dropping average of £2075/tonne - down
8.8% in one month. I tried to obtain from two of its senior dairy analysts
clarification as to how such a low price had been calculated.I gave them a list of UK cheese traders
asking them to confirm who they had contacted, how many tonnes they said had
been traded (i.e one tonne or 1000), how the average had been calculated, and
exactly what question had been asked? And the response: “It’s commercially
sensitive information, however, AHDB do consult other publications to ensure
their £2075 figures is true”.

For what its worth,
my research showed that some contracted mild cheese is still selling at £2300
to up to £2500/tonne, while, yes, some spot trades are below £2000. But I just
can’t come near to a £2075 average. In fact the EU average price is quoted as
£2175 or £100 higher - and our cheese is far superior to EU stuff! David
Handley and Michael Oakes (the two chief negotiators for UK dairy now) need all
the help they can get in negotiating prices, and they DO NOT need overly low figures
undermining their efforts!

The next eye-brow
raiser involves Promar, which has been awarded a contract to collect data to
provide a costings, and for these costings to be aggregated and presumably
published. Why? This is duplication and, to my mind, AHDB Dairy is spending the
money because it has it to spend!After
all we have TSDG, Sainsburys, Kite, Kingshay & Promar all doing costings!
There is NO market failure for AHDB to address! And besides, if it comes out
with costings less than Tesco and the others, or does anything to undermine the
work of FFA & NFU, there will be even more hell to pay!

Private Eye touched a few raw
nerve cards recently and highlighted the concern among farmers as to how AHDB
spends its £70m/year budget. The article questioned whether it has outlived its
usefulness with a third of the money going on staff salaries and one farmer
having described it as “a lucrative gravy train”.Levy payers (and I AM one) have a right to
challenge the cost and the benefits, and AHDB has a duty to respond. It has a
LOT of work to do to convince levy payers it is fit for purpose.

There can be no disputing the fact that
farmer protests have highlighted the desperate financial situation UK dairy
farmers face ahead of the rapidly approaching winter. This time FFA was very
pro-active, and spotted the exact time to go for maximum publicity.

Following an intense spell of protests
the four UK regional Farming Unions met for an emergency summit on the 10th
August and announced a five-point plan of action, with calls of action for
Government, Europe, consumers, retailers and farmers.

However in the press release issued by
the English NFU under the “farmers action point” it simply stated “we know that
many of you are going through desperate times and we are working on your
behalf. Keep being visible. Keep the British public on side.” This, to my mind,
means that the NFU endorse peaceful protesting under FFA’s umbrella. I smiled
when I saw calls to action for the other organisations but a limited call to
action for the farmers, who are clearly desperate to see real leadership from
the organisations they pay subscriptions to. Did the NFU simply pass the
protesting task over?

Farmer campaigning and protesting is
controversial, and you may agree with it or be totally against it. But it has
yet again got results. So hats off to the farmers who came out – a difference
was made. Well done! You may not agree with what they did, but some retailers
are coughing up more money. And spare thought for those people on the various
committees of these organisations who spend an incredible amount of time
striving to make a difference for dairy farmers. I know how much time it takes
me to write this monthly article, plus my weekly bulletin and to deal with the
press and media - and that will only be a fraction of the time that David
Handley, and recently “retired” Paul Rowbottom have devoted over the years. And
yes, the various NFU’s committee members put the hours and the miles in too,
for little or no reward. Some days the work can be over-whelming and leaves
little or no time for normal family life. It’s a huge strain and those who get
dragged into it often find it impossible to find a way out without feeling they
have perhaps let people down. Don’t take these people for granted.

Out of the various meetings came the
Morrisons gimmick, with a new brand of milkbeing launched that costs an extra 10ppl more than the usual milk, with
the money going direct to Arla members. The NFU welcomed the move, but for me
memories are short. Tesco tried “Local Choice” milk to help Dairy Farmers of
Britain, but the idea bombed. Morrisons will be quick to delist the new “Milk
for Farmers” brand if it doesn’t sell. And, of course, whether it does sell
depends on how much it stocks, and where – at eye level or at the bottom of the
fixture shelf.

Its time to back British, many farmers
and industry leaders are saying. The French have effectively waved two fingers
to the Dutch and the EU Commission who are demanding they respect the EU single
market principles and allow foreign dairy imports into France.

But in France their agriculture
Minister has urged consumers to be patriotic in their dairy purchasing to help
save the livelihoods of the 25,000 French dairy farmers. “All must favour
French products,” he said. In my opinion we now need a campaign to promote the
buying of British dairy products using British milk.

AHDB responded to last month’s article
about the six yearly New Zealand dairy levy board referendum required for the
levy to continue. They pointed out that during any three month period if 5% of
levy payers (about 650) sign requests for a ballot then it has to be held, and
the result of that ballot then goes to UK ministers to make the final decision
as to what happens. From our recent research of over 400 levy payers it is
clear farmers want immediate changes as to how Dairy Co/AHDB Dairy spend their levy
money. They don’t want it to shut up shop, but do appear to be almost unanimous
in calling for some levy money to be diverted to a professional promotion
agency emphasising the buy British element.

Let’s face it DairyCo has received in excess
of £1 million extra as a result of the increase in production, so it has
already had AND SPENT the extra money. But on what? Cynics say it spends the
money on encouraging more production because that generates more levy money for
it…and so on! However DairyCo told the Radio 4 Farming Today Programme on the
13th August that it can’t promote British Dairy products. I think
farmers will want to know exactly why that is. I have heard one Tesco farmer
would prefer to give his levy to Tesco if he could to help it promote British
milk. That makes sense to me if DairyCo won’t!

The next big farmer demonstration will
be on the 7th September at the EU Agriculture emergency dairy crisis meeting in
Brussels, where there will be calls for the EU Intervention price to be raised.
However this is a complex move. Increasing the Intervention price could have a
negative impact if it stimulates milk production and exacerbates an already
overloaded market. Remember the intervention price is a safety net, and if it
were anywhere close to the cost of production it would spell disaster. Please
note that although product is now going into intervention it is no guarantee
that prices wont fall further.

The only REAL solution is to cut
production and bring supply and demand back into balance. How low milk prices
will have to fall before we see a sizable cut in production is the million
dollar question. However the reality is that switching the milk taps off in the
UK will not solve the problem - it has to be a global switch off!

The Competition and Markets
Authority’s 65 page report on Muller’s acquisition of Dairy Crest (DC) liquid
business contains some interesting statements and intentions, especially for
farmers supplying its Foston and Chadwell Heath factories.

The report is surprisingly open and
transparent and details DC’s plan B if the merger does not proceed. That said,
it now looks inevitable it will be given the thumbs-up, and it could be all
change on January 1st 2016.

Plan B is for DC to downsize to its
Severnside factory and to close both Foston and Chadwell Heath. It will also
exit its national multiple contracts with the likes of M & S and Waitrose.
Their reason is simple - the business has lost money in the past four years.
Plan B makes no reference as to how the two factories would be closed or how
the staff and supplying farmers would be dealt with, however.

Irrespective of whether the deal
proceeds the staff especially have a huge black cloud hanging over them,
worried that Muller will decide these two factories are surplus to requirements
and will thus immediately close them down to deliver “synergies”? The farmers,
however, have a reassurance from Muller that contracts will be honoured, should
they want it. They’d sure find it nearly impossible to find a new milk
purchaser right now if they don’t.

Last month’s article
concentrated on Tesco. And so will this one, following its decision to review
its TSDG pool. Back in 2007 Tesco made a pledge (which they enforced in a March
2011 press release), to recognise the true cost of milk production “with
additional provisions for making a profit including capital investment and
unpaid family labour.” According to the company the TSDG was started “to
address the huge uncertainty faced by dairy farmers caused by continuing
volatility in the markets, and to ensure farmers are paid above the cost of
milk production.” Another subliminal reason was to remove the company from the
radar of FFA and its protests, which were rife in 2010 outside its distribution
centres. In response to these protests Tesco board Director Lucy Neville–Rolfe
said “Tesco remains committed to ensuring British dairy farmers receive a fair
price that is above the cost of
production.”

So the big question
is this: where does this leave Tesco and the TSDG farmers involved in the
“comprehensive and thorough” review of the TSDG. Although Tesco has recently
stated “we want to pay a fair price” there is NO reference to COP.

For Tesco aligned
producers to defend the status quo in my opinion is pointless. There WILL be
change and the farmers involved are likely to take a haircut, given the retail
milk price war and the amount Tesco loses on milk. If they don’t engage with
the review then it could be more a head shave than a back and sides.

As one of my regular
readers and a Tesco man stated “A milk buyer (least of all Tesco) cannot afford
to pay more than its rivals without gaining value in return.” Tesco farmers, to
date, have delivered little, if any value, to Tesco, despite numerous advice to
do so.

As part of the
review the gathering of the costings information by Promar and exactly what costs are included will be
explored, along with the profile of the typical Tesco farm. Recent press
headlines referring to the UK’s richest man’s (the Duke of Westminster)
“American style mega-dairy” with 1400 cows as being Tesco’s biggest supplier is
not a headline it will have liked, forgotten or ignored. No matter how good the
unit, if I asked 100 Tesco shoppers whether they’d like to see premiums go to
the Duke or to 10 family farms instead I’m pretty sure I know what most would
say. I remember the criteria used by Dairy Crest when it recruited 25 farmers
for its aligned Tesco pool for delivery into the former Amelca plant at Foston.
To be eligible for consideration farmers had to produce less than 2 million
litres and be a traditional, professional family unit.

While referring to
Tesco the NFU do appear to swallow everything drastic Dave Lewis, CEO of Tesco,
tells them. Only two weeks ago Dave informed the NFU of its 100% British
vegetable souring policy after the NFU asked Tesco demonstrate it was
delivering on its 2013 NFU Conference promise. Despite Drastic’s assurances the
next day I examined carrots to learn Tesco failed in three out of 10 outlets I
surveyed. They were selling French ones.

The Dairy industry’s
lack of funds to properly promote the nutritional benefits of milk is a hot
topic among several enthusiastic producers. One of my weekly bulletin readers
felt that the industry recently missed an opportunity when the TV and press
homed in on the ‘sugary drinks effect on children’s teeth’ issue. She believed
the industry should have been involved in the debate and promoting the
positives of drinking milk. Perhaps its time for GB farmers to seek change in
how AHDB operate. And that brings me to the New Zealand approach to its levy.

Every six years New
Zealand dairy farmers hold a levy referendum when they decide whether the levy
continues. This keeps the levy board on its toes, ensuring those handling the
funds have robust accountability and transparency, and are efficient and fair
in the levy’s spend.

If farmers are
dissatisfied with the levy board’s past or future spending plans they can vote
against its renewal. They can even force an interim vote. I can hear some
diehard Dairy Co (or AHDB Dairy as it is now called following a whopping and
unnecessary £60,000 rebranding exercise!) Kings and Queens wincing at the
thought!

Levy paying dairy
farmers have the right to challenge AHDB Dairy on whether its various ideas
deliver real benefit. Some farmers
are more radical, believing that the levy should be removed and AHDB Dairy
should be self-funding and charge those who choose to utilise their services in
the same way as consultants or other private companies do. The theory is
simple: if it is good then farmers will pay them!

Back in early June
the intimidation of Café Nero hit the news and while the instant reaction of
some of our industry bodies was to condemn the company I looked through the
telescope from the opposite end and took a different approach (see www.ipaquotas.com/QUOTA NEWS.htm 5th
June). Almost all who read it could see my point of view, with the exception of
the vocal husband of a Dairy Farmer
columnist!Two of the many people who
were fired-up and tweeted should, in my opinion, have paused for thought before
they did. One was the NFU Dairy Board chairman who called for a boycott of the
chain. Another came from Amanda Ball, Head of Marketing and Communication at
AHDB Dairy. She tweeted: “Made my coffee drinking choices easier. As it happens
I prefer Starbucks UK or Costa Coffee No more Nero.”

To me both of them
should have known better and the industry’s reaction reinforced my view that we
should have helped and supported Nero because they were not the enemy and TB is
not their battle. One person who correctly spotted that the Nero bashers were
wrong was NFU Deputy President Minette Batters, who actively worked behind the
scenes with Nero. But where was the rest of the industry in Nero’s hour of
need? Were its processor, or our representative organisations rallying round?
No. Where was the crisis management plan? There wasn’t one. Is there one now,
for the next time one of our customers gets targeted? I damn well hope so, but
somehow, alas, I doubt it.

Comments to ianpotter@ipaquotas.co.uk

IP Dairy
Farmer Article – July 2015

Now this will not be popular with a certain
elite section of the industry: the gap between the so-called have’s (on
retailer-aligned contracts) and the have not’s (those without) has widened to,
in my opinion, totally unacceptable levels. It’s now 10 ppl or more, and for me
it’s the elephant in the dairy room and has to change. Retailers are now
battling to compete with cheap milk from the discounters, which has sunk to new
lows in the Midlands of a gut wrenching 35ppl for two litres (17.5ppl)!

Let’s just look at Tesco, with an aligned
pool involving Arla and Muller farmers, which is costing them upwards of
£80million per annum, and rising! Tesco’s results were the worst on record and
its share price almost halved between June and December last year before
partially recovering.

Tesco’s producer price is fixed until
November 1st and abandoning its commitment to its farmers is
certainly not a credible option. But a variation most certainly has to be in
the wind, and I think it might be imminent. Some Tesco farmers haven’t helped
themselves, preferring to crow about their investment and what Tesco are paying
for instead of focusing their efforts on demonstrating the benefits that the
extra £80million brings to the retailer.Why haven’t the farmers who benefit, especially Muller Wiseman aligned
and Arla directs, stepped forward to promote a common message?Some are even brazenly saying that what Tesco
pays for includes some non-dairy costs, which they believe they have been smart
in lumping into the cost of production! Presumably Promar doesn’t spot this!

Through this column I have previously issued
warnings like this because the situation is simply unsustainable. The likes of
Tesco and Sainsbury stepped forward in 2007 with a much needed sustainable
model, but it’s now time for an overhaul.

I do believe that Tesco’s, Sainsbury and
others would not be foolish enough to seek a way out altogether, but they will
be acutely aware that it is time for a review because some of their aligned
farmers are piling on the extra cows, feeding more concentrate, paying higher
rents to grow maize in the belief that it can continue without them giving
anything back. On the other side of the fence are my farming friends Mr Envy
and Mr Jealous who are receiving anywhere between 15ppl and 24ppl and they
would love to see their aligned neighbours milk price fall closer to theirs. I
think, on this occasion, it will.

Those on non-aligned contracts are being
forced to change how they do things to reduce cost.Those on aligned contracts receiving 30ppl+
are not, and are highly unlikely to be the most efficient producers! Change is
in the air and Promar and the processors need to engage with the retailers to
be a catalyst for the change rather than sit back. In that case something more
drastic might come. Either the farmers’ deliver more of what the retailers
want, or the retailers WILL review the cost of production model. In New Zealand
there is a school of thought that low prices will deliver a long-term benefit
because it will curb expansion, especially from EU farmers on housed
systems.When milk prices were flying
high there was talk of New Zealand farmers moving towards housing more cows and
abandoning their low cost grass based cornerstone.

Back in the summer of 2003 there was a joint
press release issued by Milk Link (Barry Nicholls), former MMB Board member
Allin Bewes, yours truly, and freelance journalist / my occasional partner in
crime Chris Walkland, with the headline “Should we, could we, get the Milk Race
back.” The four of us set up a company called “The Milk Race Limited” and I
won’t go over which industry organisations and personalities ensured the idea
was binned, but they succeeded. Fortunately, though, only for a decade.
However, back in May I was delighted to have a great day out at Nottingham to
see first hand this year’s Milk Race, the third in a row. And what a success it
was! The race is very much back on track, and even supported by one or two of
the organisations who rubbished the re-introduction in 2003.

For 35 years The Milk Race was a 10-day round
Britain international cycle race and a cornerstone of the dairy industry’s milk
promotional campaigns before de-regulation. It has certainly risen from the ashes
and I was pleased to see Arla, Dairy Crest and The Dairy Council / DairyCo
promoting their milk, milk products, farming and the countryside to 50,000
+people of all ages from 5-85 at a major national sporting event. Cycling is
now the country’s third most popular recreational activity, with an estimated
3.1 million people riding a bike every month.

Congratulations to all who made it happen and
I hope its success is capitalized on.I
am not qualified to verify whether it’s a cost-effective investment of dairy
farmers’ money but to me there are three things which sell products today - pop
idols, sex and sporting personalities.The industry has forked out for the first one but not the second! I am
very much behind the benefits of using sporting personalities and cycling is
popular and topical.

I do believe as an industry we have to
promote the sales of all our dairy products. In addition, I wish more was done
to promote the professional image of dairy farming to consumers. That’s why the
new Arla TV advert is so fantastic! I wish more companies would do it. The
public like dairy farmers and want to support you but some of you are sadly
poor, grumpy ambassadors for this exciting industry, which has a great
long-term future and real potential.The
Dairy UK strap line “Proud of Dairy” should strike a chord with all of you.

Milk prices continue to fall and as I pen
this article spot milk is back down at 12ppl and its five weeks past the UK’s
peak production.It’s grim but heaven
knows how bad it would have been if Woodcock’s new state of the art 500 million
litres/year capacity hadn’t absorbed a chunk of this milk.Most, if not all, dairy analysts accept that
prices will certainly remain low for all of 2015 and some are suggesting it
will run through most, if not all, of 2016 until supply and demand are
re-aligned. It’s going to get tougher and regrettably there will be casualties.
For all involved there will be lessons to be learned.

Just as the crisis in milk prices is proving to be
a pressure point to drive on-farm change and efficiencies I hope the same will
be true for First Milk.I make no apologies
for returning to that business because, along with appalling milk prices, they
are the second most popular talking point among farmers.

Mike Gallacher is the new pilot on the First
Milk flight deck.He has checked the
instrument panel and realizes he is in a storm, is low on fuel, with poor
engine performance, a demotivated crew and disillusioned passengers. He also
has far too much milk for his tea, and it’s slopping around the cabin and
dripping through the floor. It’s up to him to land this plane.

He has inherited a loss-making business, with
loss making assets, and with resigning members – more of whom will go when
other companies start recruiting (if they do!). Normally such circumstances
would trigger a merger, but First Milk’s historical track record in this area
of business is poor.

Credit to Gallacher so far, though, he has
laid all the dirty washing and bad news out so the members know where he is
starting from. He has informed members the business lost in excess of £16m in
the year to 31st March so despite paying one of the lowest farmer
milk prices in the country it still paid too much for the milk! What was the
previous administration doing?!He
realises engagement and honest straight-talking with members is essential if
they are to stay on board and trust him.He has not been brought in as the change and fix it person or the
maintenance man he is the turnaround person and he needs results quickly. He
will have to ignore noisy protestors and those who get in his way and simply do
what MUST be done, and quickly.

Whilst First Milk issues are not on the same scale
as those of Tesco there are similarities.Drastic Dave Lewis, the new Tesco CEO, inherited a mess and immediately
got all the Tesco dirty washing out in the open, including the biggest
corporate write down in history.

Gallacher’s problem is the co-op has limited
free-cash (if any), hence without the help of a partner like Adams (aka Ornua
Foods) and investment in First Milk’s cheese plants the co-op simply cannot, and
will not, find money to invest or reinvest for several years. That something
many of its members will relate to, sadly. Many of its hard working, honest,
family suppliers are also struggling for exactly the same reasons: they don’t
have the cash either.

Accompanying Gallacher’s first announcement of
around 70 job losses and differential pricing came the news from Chairman Jim
Paice of an independent review in to the co-op’s governance (its board) and
commercial learnings from its “recent disappointing performance”.That’s an understatement if ever there was
one! The independent review is the Board’s brainchild, and I hope it will be a
hard-hitting Lord Myners type review of The Co-Operative Group business.

In his 2014
review Myners ruffled feathers stating The Co-operative’s board “isn’t up to
the job” and he recommended the board of farmers, nurses etc be replaced with
people who had the right skills and experience to run the organisation. He said
none of them had the ability, with one member’s experience extending to only
the local golf club. Myners also stated that it was “a cosy board” with several
who simply didn’t want to give up their pay and power. He confirmed they were
stuck in denial as to their near ruinous failure of governance which led to the
co-op’s near collapse.“The board’s
directors have to accept responsibility for what has gone wrong,” he said.

Myners also
rejected the idea the board could be trained, going on to say “being led by
eager, earnest but unqualified amateurs is no way to run an organisation.” I
can see First Milk members rolling back their eyes knowing the current board
are unlikely to escape conviction for the current dire situation, despite the fact one or
two would like to create a smokescreen dense enough to cover up their failures.
However, the last thing First Milk needs now is a post mortem or a witch-hunt.

I will be
keen to see how hard hitting (or cosy) the First Milk review is.Let me nail my colours to the mast. I have NO
desire to see First Milk fail and end up like its predecessors DFOB, Westbury
or Amelca who exited the industry in spectacular style having clocked-up
catastrophic losses and taking heaps of farmers’ money with them.Gallacher and this review could be a turning
point, but to make an omelette you have to crack eggs and while I recognise the
odd one or two First Milk board member has skills beyond the farmgate some are
enthusiastic amateurs. First Milk Gallacher needs hard-nosed commercial
expertise on the board who can assist with the turnaround.

Fortunately
there are few,
if any, members who still have their blinkers on as to how serious the
situation is.They rightly expect and
demand more from their co-op. Let’s hope the changes
made work quickly, and I hope the review is not a distraction.

Now prices. There are glimmers of hope that global
milk production is slowing down in response to very low prices (although not in
the UK just yet!).It’s a step in the
right direction but significant product surpluses have built up in the last 18
months, which will be slow to clear and bring the market in balance. Going forward
volatility will be a permanent feature in world dairying, and to cope with it
farmers will have to refrain from unnecessary spending in the good times.

The spending spree is over and it’s
belt-tightening time. Those who are highly geared and made significant
investments in 2012-2014, many having stress-tested their milk price at 30p!
(and failed), are in serious trouble. Those who have prepared for the worst and
squirrelled away some emergency money will come out of the end of this very
long tunnel in reasonable, if not a good position. For the borrowers I say take
note of comments made by New Zealand’s Federated Farmers Chairman Andrew
Hoggard about New Zealand farmer’s debt levels. In 2003 average debt levels
were NZ$9.50 per kg of milk solids, and at the end of last season it had
doubled to NZ$18.90. Almost 25% of dairy farm debt is owed by farmers who are
in debt to the tune of NZ$30 per kg or more.The total debt at NZ$34 billion is concerning its Government.

Hoggard is urging banks not to view farmers
with high debt as bad farmers but to check if they are actually “good farmers
who have been caught out by the timing of their expansion and the downturn.”
Are they a good asset to the future of the industry, he asked them to question.
At the time they expanded such a dramatic turndown was not foreseen and, let’s
face it, the banks who loaned them the funds to expand didn’t see it coming. He
has a very good point.

IP Dairy Farmer
Article – May 2015

Passport and visa in hand, vaccinations up to
date, and protection minders in tow I recently decided to cross the border –
the River Tamar - and pay a visit to Dairy Crest’s (DC) Davidstow cheese
factory, in particular to see first hand the progress of its £68m investment in
a state of the art de-mineralised whey (DWP) powder plant (for making into
infant/baby powder). It will be commissioned next month and, when at capacity,
it will produce around 26,000 tonnes of DWP (80 tonnes/day) plus 13,500 tonnes
of GOS each year (another technical, profitable product but space constraints
mean I can’t explain it!). The plant was supposed to have a five year payback,
but probably won’t at current prices!

Basically, the process removes 90% of the
minerals from the milk and the DWP leaves the factory in 1 tonne or 25kg bags.
It requires 500 million litres of supply (60 tankers a day) from 400 farmers,
which is effectively 60% of all Cornwall’s milk output.Dairy Crest will never be a big gun in the
world of infant formula, but it is likely to have one of the most efficient DWP
processing plants in the world, thus adding value to its farmer’s milk.

DC has spotted the obvious advantage of the
highly successful collaborative trading models that Fonterra has across the
world, and decided it is the number one partner to market all of its Davidstow
infant formula.As I have stated
previously on more than one occasion in this article processors like DC do not
have to be a co-operative to co-operate, a fact some GB dairy farmers struggle
to comprehend.

Asia, particularly China, is the target
market but getting a new product into China would be a huge challenge to
DC.It’s not a case of filling a
container and picking the telephone up and saying we will deliver it £100 tonne
less than the competitors.Fonterra is
the best route to quickly overcome trade barriers.The Chinese market is huge, and sales of baby
powder to China are predicted to rise to £17billion/year in two years.DC is not the only one investing significant
money in DWP processing, though, and I hope the world will not end up with
excess infant formula processing once everyone is up and running.

I believe this joint venture with Fonterra is
a very smart move by DC.If it was to
attempt to penetrate the infant formula market and go head to head with the
world’s biggest infant formula producers - Nestle and Danone - it would only
devalue the product.This deal will
facilitate Fonterra adding value to the powder and allow DC to focus on what it
does best at Davidstow - collecting quality milk from a very tight, traceable
milk field and processing it efficiently. Devon and Cornwall have a solid
reputation for quality food products with geographical prominence, and this
should be a great selling point of difference for DC’s infant formula, and
comfortably satisfy Chinese requirements on tradability and provenance.

Meanwhile, quotas have ended at a time when
world and UK farmgate milk prices are under extreme pressure.There is no point calling for the government
or the EU to interfere with the market place.At the moment we simply have a worldwide imbalance in supply and demand
of milk and milk products.It will
correct itself, but at a financial and, in some cases, unquantifiable family
cost.The volume of milk we are
producing, excluding organic, can be absorbed by the world, but not
consumed.Basically, only a fool would
pay producers more than can be earned from the milk processed, hence prices are
under severe pressure.April and May
will be very tough for some producers, even more of whose price could dip under
20ppl.

For decades the price the British farmer
received for the milk was determined by the market the milk went to, with the
Holy Grail being the magical liquid premium. That has gone, however, and now
all smart GB dairy farmers take their pricing signals from the GDT auction and
mainland Europe, especially Friesland Campina and Arla (whether you like it
/them or not). While major players in the UK dairy market need to extract
maximum benefit from the home and European market all involved in the industry
need to now look globally.

The national news is almost on election
overload with UKIP’s Nigel Farage entertaining / infuriating Joe Public in
equal measure with his ideas - some of which often receive quiet support even
if they don’t translate to ballot box votes.

It’s not quite the same but it left me
wondering whether David Handley and FFA aren’t the new UKIP in dairy farming
political circles!The established
parties try hard to box him out of meetings but he is gaining supporters, won’t
take no for an answer and can be relied on to pull a crowd 10 times bigger than
the established parties & organisations with their Prime Ministers and
Ministers of dairying when it comes to dairy farmers turning out on an evening.

Handley regularly has stones lobbed at him
from very well funded opposition while he takes centre stage on a shoestring
budget. It won’t stay like this forever, though, because you can’t keep the
peasants down forever! They revolt and force change.

The show season will soon be in full swing,
and for me that means my annual two-day pilgrimage to what I believe is
possibly the best county show in town – The Royal Cornwall.

At the risk of clogging my email box up with
comments like “Potter has swallowed a packet of Dairy Crest happy pills this
month” I am going to mention a little publicised initiative I benefitted from.

At last year’s show DC and DCD offered a free
health MOT to its farmers and its favourite industry commentator.I perhaps wasn’t DC’s favourite at the 2014
show, but I could be by June 4th 2015!I took one of the health checks just to be
sociable because I was perfectly, perfectly healthy. Or at least that’s what I
thought. Actually I wasn’t, and my blood pressure was off the scale. I ended up
having an ECG - the very same day - and visiting my doctor as soon as I
returned. I felt normal, and on this occasion miraculously nothing had
happened. Maybe it was the thought of an Uncle Arthur Reeves grilling for
giving DC a hard time!

As was commented by DCD at the time, most
farmers spend a lot of time and energy providing first class care for their
animals, but when it comes to looking after themselves it appears to be lower
on their list of priorities.I can
assure you it’s at the top of my priorities now. Make sure it’s at the top of
yours is my message!

Finally, as supermarkets battle it out
offering 4 pints for 89p or less, my wife noticed Sainsburys selling branded
cat milk for £5/litre.You could scratch
some eyes out, rather than purr at that price!

One time, hopefully sometime soon (I am sure it
is thinking) First Milk won’t be
making the news. Alas it isn’t this month though. After six years in office,
and more ups and downs than most CEO’s would ever want to cope with, the firm’s
boss Kate Allum is leaving and being replaced by Mike Gallacher from Mars
(that’s the company, not the planet). He’s the second person from that company
to take the helm in the dairy industry in recent years. Let’s hope he does a
much better job than his predecessor Rob Knight, the former Chairman of DFOB.

Gallacher has no dairy industry experience or
network of relationships. Instead he’s used to the dog-eat-dog (actually
dog-eat-biscuits) world of petfood. But maybe he’ll turn his clean-sheet,
zero-baggage into an advantage. He needs to, as the track record of executives
who come in from the outside to take high level positions is not good. (All
that said, though, DFOB’s old boss did have the attitude that they couldn’t be
told anything, and that they knew it all. Their arrogance was beyond
breathtaking, so maybe it’s probably unfair to compare.)

Nevertheless he boards the First Milk ship in
choppy waters and it will need luck, skill and expert navigational skills to
ensure it does not run aground.

It will certainly be very interesting to see
what he does with the business. Will he, for example, oversee a controlled
shrinkage to ensure it retains the right supplying members in the right
locations for its more profitable outlets, and cuts costs? Or will he look to
marry it off in its entirety? Or sell assets to get the debt down? Or even grow
it, over time! Downsizing would almost certainly mean losing producers, but
that wouldn’t necessarily be a bad thing if it took control and proactively
managed the situation. The worst outcome would be for it to be left with the
wrong producers in the wrong locations, which would potentially add to its cost
base unless some sort of cost-reflective remedial policies were introduced.
Gallacher had better quickly figure a way to improve the deal First Milk
members receive, because, for many, it will be a case of seeing the spring out,
and then seeing if the net price received has improved. If it hasn’t then I
foresee a lot striving to find a new buyer or, if they can’t, packing-up.

It’s now in excess of two months since the
co-op published its much-delayed financial accounts for the year ended 31st
March 2014. The financials were available to all its 1200 members. When I
received them one of the pages that particularly caught my eye was page 23 and
the section headed “Director’s Remuneration”. Here it shows that Allum received
£340,531 in the year ended March 2014, including £11,730 (almost £1000/month!)
in bonuses. Those figures are pretty tasty, and while no detail is given as to
why a bonus was paid it surely was galling to many members. In addition, the
figures confirm that Finance Director Ian Forgie received £232,185 for his nine
months work, including £121,557 compensation for losing his position.

They are, by any stretch of the imagination,
massive figures. But clearly the figures weren’t galling, because not a single
member from First Milk’s 1200 base raised the issue with me. I would understand
this if First Milk was top of the milk price league table, but not when it is
rooted to the bottom.

Are the members punch drunk and fed up of the
bleak financial position of their co-op, or do they simply not care and just
hope the milk tanker turns up regularly to collect their milk?

Now to Scotland, and the aspirations of the
newly elected NFUS Milk Committee Chairman Mr Graeme Braveheart Kilpatrick, who
wants to “drive demand for Scottish dairy products at home in Scotland and
abroad.” Nothing wrong in that, but one of his goals is to see Scottish dairy
products displayed “on the middle (eye level) shelves of supermarkets across
the UK, not just in Scotland”! Now hold on Mr Braveheart, let’s just get this
straight: Scotland produces significantly more milk and dairy products than it
consumes, so you have to export to places like England and Wales. But English
and Welsh supermarkets are simply not going to give prominent middle shelf
space to branded Scottish milk and dairy products and pay a premium as they try
to with Scottish beef!

If that’s the Scottish game plan I want to
know who is going to go into battle for English and Welsh milk and dairy
products, or will we just roll over and say “it’s your idea Scotland, by all
means be our guest and take that space”.It’s amazing that the English and Wales NFU are on mute and haven’t challenged
the NFUS on its aspiration. At the end of the day, though, if it has a Scottish
label on it then English and Welsh housewives will have the final say as to
whether they buy English, Welsh or Scottish product.

After 31 years milk quotas come to an end on
the 31 March.As to what happens next it
is a near certainty that EU production will increase irrespective of the
current price volatility. The final superlevy bill, which could be as much as 1
billion Euros, coupled with the fall in farmgate milk prices, has slowed down
production this year but come the 1 April the brakes will be off.

On the day quotas end I will be in New
Zealand ready to line up on the grid with 60 classic Mini’s to drive 2,500km in
six days from Kaitaia in the North Island to Invercargill in the South Island
in aid of two children’s charities. It is the trip of a lifetime. Daily details
and photographs will be posted on my website for those who want to follow my
adventure.

For those who would like to contribute to the
charities please log onto:

Thank you in advance for your donations. For
those readers who would like me to go on a one-way trip I apologise because I will return.I informed one industry guru that I was going
ski-ing for four days and guess what? He suggested I did a whole ski season,
where I couldn’t pen my bulletin and then added “I hear Syria has some lovely
ski resorts!” With friends like these who needs enemies!

The
results of DairyCo's latest annual farmer intentions survey for
2015 were once again released at the Dairy Breakout
session ofthe AHDB's annual Outlook
Conference in Westminster.

While
the majority of media and press centre on London it's certainlynot a farmer-friendly
venue, and I wonder how long it will be
beforeAHDB and DairyCo cut costs and move
out of London as the NFU did so boldly a few years ago. Remember when the NFU
made themove Gwyn Jones and Sir Peter Kendall were both at the front of the cavalry, and
both are now at the forefront of change at AHDB,
along with new chief exec Jane King. Already there are signs of a change of emphasis from the top three, and
Gwyn
Jones doesn'tseem to be a
chairman who hides behind theDairy Co remit defence-shield, telling
producers what he can't do rather than what he can do. There is clear evidence
he is starting to help promote British dairy
products, which will at least boost levy payers
opinion ofwhere their levy money is spent.

This year's Intentions survey has one headline worthy of cross
examination.From a survey of 850 GB farmers a staggering one third plan to increase milk production during
the next two years. Assuming they do as they say Dairy Co'ssurvey
translates to an eye watering 6% increase in National
production.As Dairy Co pointed out, the
ambition to increase production comes onthe back of a record production year.

I
have no doubt the 6% figure has been accurately crunched by Dairy Co's bean
counters, but does the message,
and conclusion, best serve itsdairy farmer levy payerswho
pay around £7.3 million to fund it?My question,
simply, is this: will processors and
retailers see the figure and think there are no long-term
concerns over the effectthe
current low milk price is having on farmer confidence, and
that whatever happens the milk will still flow? The message could result in retailers and food
service customers taking the attitude that it doesn't matter what they pay, there will neverbe a shortage. The
detail of the survey, in that it was done in December and before milk price
cuts had really hit milk cheques, will be lost.

Milkprices
for the majority have headed further south since
December, so surely
it's a sensibleidea to do an
up-to-date
poll immediately prior to the conference slot to check whether prices, new developments (such as the reality
of the ending of quotas and the certainty of A and B production limits [and
for someA,B
& C] has dented ambitions. Personally I think the initial poll should be 400 farmers, with 100 done
two weeks before the conference. I don't thinkthere's
a need to
pay thousands of pounds surveying 850 GB
farmers, plus 150 in NorthernIreland each year.That's 8% of GB producers! Remember, only 1,000 people are surveyed by pollsters to determine the likely general election results for a
population of 64 million!

Nevertheless it's useful to
have an annual confidence barometer, plus farmers' thoughts
as to their future investment and production plans. But
theresults do need
handling with care, even if recent survey intentionscovering planned production have been
way off the mark when compared to actuals.

By
the time you read this article there will only be a few days
left until the 31st March, and the ending of 31 years of milk
quotas.During
that time the UK has paid wholesale super levy in 15 years, with the
most being paid in March 1996 when the levy rate
was 31.43ppl and the total paid was £44 million - an
amount boosted moreby the
introduction of the butterfat adjustment,
because we actuallyonly exceeded
our national quota
by 1%.Since March 2004 the UK has been under
its wholesale quota for thepast
11 consecutive years, during which time our quota
hasincreased by more than 1 billion
litres.The total
wholesale super levy paid amounts to £235 million,
and includingthat paid by producer-retailers
gives a grand total of £276 million. From1st
April it's a free market for 28 EU countries, and inevitably the boom to
bust and back again pendulum will
prevail.

The
drastic producer haircut by First Milk in January to reduce its debtis still prompting numerous e-mails
from across the industry.Not
only was it a deferral, until further notice, of monthly member milkcheques plus a
back-dated conversion of milk revenue into
capitalcontributions,
it was also a tax blow to producers. For those First Milkmembers who pay income tax (and I
accept they could be in the minority today!) the
capital contribution is treated as net of tax.That
means a 40% tax payer has to earn 3.3ppl before tax to
pay the
2ppl capital contribution.

The
next news from First Milk simply has to be good, and
will hopefully
confirmthat business conditions have
improved. It has to showits
balance sheet has been rebuilt on a solidand
sustainable foundation. It also surely has to offload
loss-making ventures,
possibly
including recent acquisitionsin
order to reduce its debt further, as well ascuttingits
own costsfurther and deeper, like Arla did recently (with 100 job cuts). It cannot
keep coming back to farmers expecting them to fund a
shortfall accruing fromitssituation / poor selling / lack of business competence. Ifits outlook does not improve in the
next six months itcould easily find itself in
another dicky situation, especially if selective
recruitment from others coincided with another run
of member confidence. I know the
companydoesn'tneed reminding that its
recent decisions havepushed
several loyal members over the edge financially, mentallyand in terms of family relationships.

The
last thing anyone wants is
another DFOB, United Milk or Amelca. Good
honest hard working dairy farmers
who are members of a Co-op shoulddemand
the same calibre of professionalism as expected from managers
in PLC and private dairy
businesses.

But it's not just First Milk members who have taken a kicking. One
farmer has had his milk contractrenewedon the
condition he sells 500 of cows. If he doesn't then he
has no milk buyer! He appears to be one of a number who
took a short-term view and switched from a long-term secure contract that paid an OK price into
what looked like astraight forward, but higher priced
one. These were mainly offeredby brokers, of course. Many of those
farmer arenow in a worse
pickle than First Milk men.

In my opinion too many dairy companies, brokers and farmers have
alltheir eggs in one basket. Whether
you like it or not that brings riskcompared
to those companies with diverse outlets, and
globallytraded
products or brands. Whether
we like it or not, it will not be anything connected to
our much loved / hated liquid market which will push farmgate
milk prices up. Such a change will be instigated by those processors
exposed to global markets,
and the liquid processors will be like sheep following them.Fingers crossed the GDT auction
continues to rise, especially if it's boosted by a lift
in the Russian import ban and China starting to buy again - becausethey have to and will. The only
question is when!

As I write
this article First Milk’s accounts for the year ending 31st March
are due out. They are long due out, in fact, and certainly have not been
published to timely plc standards. When they arrive they will be heavily
scrutinized and the co-op’s management cannot complain about this.

The company
cannot hide behind some of the issues it has to address. For example it has to
look at the remuneration of senior people and link them to their individual
ability and achievements. They cannot escape conviction.

Even some
of the co-op’s strongest and vocal supporters are admitting they are nervous,
simply because they are not convinced the recent drastic actions alter the
underlying viability of the business. The co-op’s management and board are
barely giving members enough oxygen to breathe, and at best the farmers face a
long period of relegation zone milk prices and extended payment terms. For
years First Milk members have settled for below average performance and for
their loyal support they should expect superior performance.

The
ramifications of its cash crisis are endless. Two traders who have surplus milk
have informed me they will not sell milk to First Milk on any spot or
short-term contract to go into Westbury for processing, fearing they may not be
paid for it. That means it loses the opportunity to secure cheap milk and to
utilise any spare capacity at Westbury.

The
announcements by the co-op in January destabilized and demoralized farmer
members in a matter of hours. I have huge respect and sympathy for the majority
of First Milk members who have resigned themselves to the fact that no matter
how many hours the family work, how hard they cut costs, how hard they push
themselves and their business, they realise they will struggle to keep their
heads above water, with the lowest milk price and deferred payments for their
efforts.For some they are pushed to
breaking point, and this is a cost that is not reflected in the bank balance.
And scratching around with the hens in the farmyard, so to speak, is even more
galling when you know some of your friends and neighbours are soaring high with
the eagles on price.

Co-ops in
the UK have a chequered history, what with Dairy Farmers of Britain’s failure
and First Milk’s current woes. At least Milk Link saw the writing on the wall
for small co-ops and made the right move with Arla. But there are numerous
European, US and Canadian dairy co-ops that have succeeded. In fact there are
four dairy co-ops in the top eight positions in the world league table.

Co-ops are
no different to any other business, in so far as if they don’t have a sound
business plan they will fall over. Farmers join co-ops in the belief they will
profitably process all their milk and they will maximise its value. But they
want the co-op to be professionally and commercially run in their best
interests. Most dairy farmers do not join a co-op expecting to receive the top
milk price in town. They forego short-term price promises in favour of a
long-term, secure purchaser. And normally they invest in it in the expectation
of a higher price and strong performance, and not to be forced to
invest/cough-up because the co-op has run out of cash to pay the monthly milk
cheque.

I don’t
blame dairy farmers for looking elsewhere if they are not convinced their
current milk purchasers’ business plan is sustainable. Today, though, few can
change milk purchaser. But for First Milk the time bomb is ticking quickly. If
it fails to convince members that its plan will not only guarantee survival but
lift them to above average performance in terms of returns it will cost it very
dearly, and quickly, when recruiting recommences.

One of the
first steps First Milk should do in my opinion is to dump the Voluntary Code 30
day notice of price movements asap. It’s a millstone around its neck and is way
off being a level playing field across processors. Keeping to the 30 day rule
is doing what is right for those who coined the code; it has seemingly not done
the right thing for it members.

And here’s
my tip for everyone else for 2015 and 2016 (for what it is worth).
Remember what happens in this crisis, and how your milk purchaser treats you.
Those who play fair with a straight bat should be applauded. If you are
subject to an opportunistic milk buyer who drops the milk price when he can,
and sneaks in other scheming ways to drop your price further, dump him as soon
as you can - and don’t forgive or forget. As Alan Wiseman stated in 2010 “Treat
people the way you would like to be treated. That’s a simple rule which has built
our business to what it is today”. In summary, remember those who support you
in this crisis.

Finally the
mass media have certainly given the UK dairy industry its quota of coverage in January.
Apart from First Milk, the main point they have centered on is how come water
costs more than milk, with four pints for a ridiculous 89p or less? Well my jaw
dropped when I was alerted to the 22nd January 2015 issue 38 of
DairyCo’s Dairy Market Weekly.

In it was an article headlined “Is the price
comparison between milk and water hiding a bigger point?” The article went on
to state “As the graph shows (DairyCo love graphs!) if we take the branded and
non-branded weighted average prices for both water and milk sold by retailers
we can clearly see that, in both cases, milk sold for more than water.” So
while the mass media have been lapping up the story that water is more
expensive than milk, and filling the airwaves and papers full of stories about it,
DairyCo (to whom producers pay £7m each year) in levy, have carried out some
fantastic research to prove that milk is, in fact, more expensive than water – thus taking away one of our greatest
headline grabbers ever! I ask you. Where’s the PR nous? There’s surely some
brains there somewhere! After all, the head of AHDB’ Market Intelligence
Section is paid close to the salary the country pays George Osborne as
Chancellor of the Exchequer! (That said, though, DairyCo’s all-time words of
wisdom surely have to be from its “Forage For Knowledge” bulletin once when it
said “Variations in grass growth results are down to local differences in
moisture and temperature.” Never!

Let’s hope
Jane King, as new CEO of AHDB, has a big milk shake up in DairyCo’s comms and
intelligence departments. She needs to ruffle some feathers and might even
ruffle DairyCo Chairman Gwyn Jones’ resplendent hair-do in the process!

Firstly,
tentatively, happy New Year. I say tentatively because the prospect of further
significant cuts in ex-farmgate milk prices this year is real and inevitable. Despite
the medium to long-term outlook for dairy being excellent it’s not looking good
for 2015, especially during the spring flush, and with the pain will come an
exodus of dairy farmers.

Similarly,
the devaluation of milk by Iceland, Lidl and Aldi to 89p for 4 pints is
devastating and likely to come under fierce attack from our big 4 retailers,
led by ASDA or Tesco, in January who will either price match or top trump the
89p price. I don’t for one minute believe that milk will be singled out to be
devalued, but it will be a key basket item in what will be an aggressive post
Christmas price war. That’s unless the three discounters lift their price back
to at least £1, which is wishful thinking.

The quota
market is certainly sparking - against all the odds I have to say, and not
because something I have said. Buyers are plentiful and focused on two
possibilities. One is that the European milk price will plunge further into
crisis in the spring, which will force the Commission to do a last minute
U-turn and extend quotas beyond 1st April. I believe that’s very
speculative and bordering on the impossible, however.

The
second possibility, which has quickly risen to the top of the pile, is that the
Commission’s interest in A and B production is serious, and it may attempt to
influence its introduction across the EU. The thinking is that if the
Commission wades in it will not base a scheme on actual production, but on
quota held at 31st March. However, if milk purchasers introduce A
& B prices / “quotas” they will surely base their calculations on actual
production and not on quota held. I think A & B limits will be introduced
by milk buyers based on production, but I can understand why a large number of
producers are buying quota just in case.

The
Iceland deal brokered by FFA, whereby Iceland will ensure a minimum of 70% of
their cheddar is made from British milk with packs carrying the Red Tractor
logo, is a very positive move on which FFA is to be congratulated, and one in
which protests and lobbying have delivered real change in our favour. The food
industry simply has to improve on provenance labeling. I wonder, for instance,
how many consumers realise that Philadelphia cheese is made in Germany, with German
milk?

The
other liquid milk pricing deal FFA negotiated with Iceland looks fantastic as a
headline, but as always the devil is in the detail. The deal is that if the
Muller / Arla non-aligned farmgate price drops by 1ppl Iceland will
automatically pay 1ppl less, and won’t exert further downward pressure on milk
processors. If it goes up 1ppl it pays 1ppl more.

However
I bet it won’t, because it looks to me like a win-win situation for Iceland.
Every time the farmgate price drops Iceland pocket the money. Look at it this
way: if, for example, the farmgate price is cut by 3ppl due to a fall in cream
values or the cost of balancing, under this deal Iceland pockets 3ppl. Having
deducted 3ppl from Iceland’s invoice its milk processors (principally Muller, which
supplies Iceland with the most milk) will then surely have to cut the price
further to compensate for the Iceland deduction until they fully cover both the
3ppl cream value drop plus the money Iceland are demanding under the deal.
Theoretically the opposite will happen when prices go up, but will it? We will
certainly never find out!

Most
processors push to maintain clear water with no linkage between farmgate prices
and their commercial relationship with retailers. To do otherwise gives
retailers more power, and all that happens is they lock onto the farmgate costs
of milk and squeeze the processor.

As soon
as this market turns processors will be desperate to immediately reflect all
improvements in the farmgate price. By locking into a farmgate price Iceland
have scored a goal because we all know that there is a delay/time lag between
the global market improving and it filtering down to farmgate level.

A rough
calculation leads to the conclusion that in excess of 200 milk producers will
be looking for a new milk buyer by 1st April, and one analyst
calculates it could be as many as 350. That’s why I emphasize that in this
crisis having a buyer who will collect and pay you for ALL of your milk is
worth a lot. As one old time farmer commented to me “If you can’t sell at the
price you want, it’s OK. But if you can’t sell at any price it’s desperate.”

While
those farmers battle to find a milk buyer around 200 Arla - AMCO
Tesco producers have some serious number crunching to do. This month the gap
between their price and the Arla Tesco direct price has widened to
7ppl. These Arla members could leave the co-op
after only three months notice to become Tesco direct suppliers again,
subject to paying a relative modest penalty of 2% of the value of last year's milk
as well as paying off their loan account. In the run up to 1st January
I received a number of emails and calls from those involved, one of
which was jaw dropping. He had employed a consultant to advise him whether to
make the switch for 1st
April. The consultant was focussing on
whether Tesco could scrap its aligned milk purchasing scheme and avoid serving
its contractual 24 month notice. My response was that this was a mickey mouse way of looking at it, and that the real question to focus on was whether
Tesco has the ability to vary the terms of the cost tracker at
short notice, as well as whether the producer who leaves would be
allowed to rejoin as an Arla member at a later date. I believe that Tesco CAN change
the formula and cost tracker giving only ONE months
notice, and given the fact its current milk purchasing policy
appears to
bring minimal benefit to Tesco it is likely to come under severe scrutiny.

As to
whether a resigning farmer could rejoin Arla, if I
were the
co-op I would make this a nighon impossibility.
Thus
the decision to stay or leave is a tough
call, but now (as with other situations) may not be the time to jump out of the
fire into (potentially) the frying pan unless there are sound alternative milk
buyers to switch to. For the financially stretched they may have no choice but
to make the switch. However, whilst the gap may be 7ppl today its certainly won’t
be 7ppl over a twelve month period and one day there will be no gap.On the plus side at least these 200 producers
have a choice, unlike those without a milk buyer.Put simply do they follow the money for a
short term gain or take a long term view assuming they receive value in being a
co-op member.

A
recovery will come but it will be late 2015 at the earliest.The problem is not so much how low the milk
price drops more of how long it stays low.

Given
how low global commodity prices have slumped, when prices do recover we are
likely to see very sharp rises though.Before that happens WMP powder stocks need to be cleared, and EU cheese
stocks too, after which real recovery can starts. Today world stocks are still
rising, which is delaying any hope of recovery.

The Muller deal to acquire Dairy Crest’s liquid and butter business is
certainly a good news story for the industry.Consolidation in the liquid sector, particularly, was much needed.

Theo Muller has certainly made a big impact in British dairy processing
in the past three years, with the purchase of Robert Wiseman Dairies in 2012
(for £280m), the building of a new butter plant in 2013 (£17m), the purchase of
the Nom and Minsterely factories in 2013, and now the new Dairy Crest liquid
and butter operation (£80m) – subject to regulatory approval, of course.

Muller’s total GB spend in three years is thus around £600m. But I doubt
he will stop there!Where will his next
shopping trip take him?Will he bid for
Dairy Crest’s profitable cheese business, or will a takeover bid come from
another processor, probably Lactalis?There islots to play for, and
it’s game on in GBre processorconsolidation.

The Irish Dairy Board and its cheese processing arm Adams Foods are only
a few miles from our offices in Leek and are a popular destination for late
night farmer visitors, shall I say, when cheese prices head south. Adams pack
90,000 tonnes of cheddar a year there, split roughly into 40,000 of Irish and
50,000 of British primarily from Parkham Farms, South Caernarfon and First
Milk.

The popular opinion, though, is that cheap Irish cheese floods into our
market to undermine it, so I decided to check out just how much extra cheese
the Emerald Isle has landed on our shores this year.

UK cheddar imports totalled 105,000 tonnes during 12 months ending
August 2014 down 38,000 tonnes (26.5%) on the tonnage imported a year
earlier.To my surprise Irish cheddar
imports to the end of August were down 5,420 tonnes (6.2%), with imports from
New Zealand and the USA up markedly instead.So the Irish are not flooding our market.With UK cheddar production up a staggering
22,000 tonnes in the first nine months of 2014, this is a self inflicted
problem and not an imported one.On the
flip side of the cheese balance sheet UK cheddar exports are up 2.5% year on
year.

Mature cheese made six to nine months ago was made with milk at 30ppl
plus, and now it iscoming out of store
on a much weakened market. The result is some of our cheese processors are
having to sell cheese at significantly below the cost of production. If
retailers and others expect the cheese at prices based on today’s milk price
they will only drive down farm gate milk prices further. And retailers will not
want to have their name associated with taking money off farmers!

Interest in, and talk of, processors introducing A and B pricing/ “quotas” is gathering pace. The idea is
based on having A quota milk which will be paid at a contracted price on (say)
+/- 4% of an agreed production level, while above that there will be the B milk
price, which will be paid at a realisation price with the aim being not to
dilute the averagetotal milk price. The
other big advantage of this scheme is it helps farmers to focus on what return
they can achieve from any extra milk production. Perhaps if such a mechanism
were in place today, and with B milk paid at 17ppl and dropping, there would be
much less milk around!

It’s likely two tier pricing will initially suit liquid processors, especially
those in the fiercely competitive middle ground, with A milk contracted at a
liquid price and B milk paid at a manufacturing price. The European Milk Board
continue to call for a supply management mechanism post April 1st(less than four months away now) with the aim
of controlling milk production to ensure the avoidance of a complete milk price
collapse and crisis.An A & B system
could tick their boxes.

The idea that EU milk production will level or even fall in 2015 seems
farcical given that from April 1st there will be no super levy
penalty. Some member states will have to apply the brakes to reduce their super
levy bill this quota year, but the brakes will be off in April.

As I close for 2014 I apologise for the fact I can only see a small
glimmer of light on milk prices at the end of a very long tunnel.The medium and long term prospects for growth
in world dairy demand, and driven primarily by population increases, are
excellent.But the prospect for the 2015
farm gate milk price looks grim, especially come the spring flush. We need to
manage supply better and accelerate demand for British dairy products.

We simply don’t have profitable markets for the extra 1.5 billion litres
plus of milk we are producing, and even worse I question whether we have the
peak processing capacity to handle it all come next spring.Then there will be distress milk with no
home. This could easily last for most, if not all, of 2015 after which there
should be more light at the end of the tunnel.

The EU’s extra milk – up 6% this year - has to be destined for
international markets, but Chinacan’t
take it all, plus the rest that farmers are producing in Australasia.In addition, EU cheese producers are fighting
to find new markets for cheese they previously sold to Russia.It’s what’s known in posh technical
marketing speak as a bugger’s muddle out there, and it will last some time
before it sorts itself out.

I recently received a copy of the International Farm Comparison Network (IFCN)
2014 Dairy report. Normally reports like this get filed, but this one caught my
eye.

IFCN pull together information and data from over 100 countries, which
represent 98% of the world’s total milk production.The report certainly gives readers a better
understanding as to what is happening on the global dairy scene.

It’s a staggering figure that 1 in 7 people in the world live on a dairy
farm, compared to 7 billion consumers and 1 billion people on dairy farms. The
report includes cost of production comparisons from 54 countries who represent
91% of the world’s milk production.

Torsten Hemme, the MD of IFCN, refers to the abolition of quotas in the
EU and comments that there will be very fast structural change to larger farms,
with lower costs.Whether it’s the
removal of quotas or the collapse of the milk price that does restructuring
it’s a near certainty there are going to be numerous casualties and tears in
2015 - both at farm and processor level.Another of the comments related to which farmers used the favourable
milk prices from 2013 to build up a war chest in preparation for the drop.I wonder that too.At least we can be buoyed by the conclusion:“Demand will continue to grow due to market
recoveries and possibly will not be satisfied by the milk supply’.Then the volatility wheel will turn
again!Let’s hope it doesn’t take too
long!

By
the time this article is published bank balances will be feeling the effects of
the price cuts.Many farmers will be
eagerly awaiting their (lower) SFP money, too. But part of that will need to be
reserved for the tax bills due at the end of January and July. Cash will be
short in 2015, and the spending spree is over.

Some
processors are guilty of bringing on some of the production problems
themselves. Paying production bonuses to new and existing suppliers until April
2014 lacked foresight, for example. And
farmers were encouraged by organisations they pay subscriptions and levies to
to “grab the opportunities”. So they did, and it’s they who are paying the
price. UK farmers have produced up to 9.5% more milk than they did a year ago,
only to find processors do not want it, irrespective of the end product it
could be turned into.

But
here’s the question: can you name one business which produces 10% more and
expects buyers to buy it ALL?It doesn’t
happen in beef, cereals, pigs, or lamb. Most produce to the market, and until
producers and processors match anticipated demand such extreme volatility will
continue.

Many
farmers ramped up production quickly without talking to their milk buyer,
expecting them to automatically take every litre they produced. This has to
change and both parties have to agree limits. For some this may include
something like A and B quotas or volumes. The current problem WILL return
unless we try to do things differently! After all, if you do what you have
always done you will get what you have always got.At least FFA’s David Handley is coming up
with ideas, like the A & B. It’s a constructive suggestion in my view, and
will have merit for some processors.

To
my mind farmers have three options:

(a)Kill
some cows to cut production

(b)Try
to cut production without culling

(c)Sweat
it out and take the pain

But
I think I know what will happen. Many will look to produce more milk to maintain incomes, thus adding to the problem.

There
is minimal light at the end of the tunnel.In fact, to me, the tunnel is getting longer each month.Winter forage is good and if we have a good
spring that’s when the casualty department will fill up both at farm and
processor level. As this article goes to print Arla have announced that there
will be no price adjustments for November. Good for them, but don’t read too
much into that because the fundamentals have not changed.

It’s
a blood bath wherever I look, particularly in cheese and the middle ground
liquid sector where the extra milk is sloshing around and several are hawking
cheap milk around, chopping the legs from incumbent processors and, in turn,
dragging the whole market down. On cheese most processors in 2013 were
increasing farm gate milk prices on a monthly basis, which actually left few
with little, or no margin. For them it is grim, as milk costing well over 30ppl
has gone into cheddar which is still maturing and which will come out of store
to face customers demanding lower priced cheese. Processors had to put milk
prices up when the market was surging, but now it’s flooded out and milk prices
are falling.

Some
farmers are under notice to find a new milk purchaser with many under
instruction that if they can find a new home they can leave at the end of the
month as opposed to having to serve their full notice period. The NFU president
talked about some producers only getting around 25ppl in a press release in
early October. If only his information was correct! Some are on just over
17ppl, with only one option of where to sell their milk and some are our very
largest producers! But then again they did have the option to sign long-term
secure contracts but chose to ride it out on shorter seemingly higher price
ones! Greed over sense, maybe.

On
that note there is one financial winner out of this mess – DairyCo - because
the extra milk produced in the past 12 months has netted them an extra
£600,000. Questions are already being asked about how it will be spent. I hope
its new chairman spends it wisely for the benefit of all the industry and not
telling farmers how to produce more milk!

Questions
are also being asked about The Tesco TSDG model. It works for farmers but does
it work for Tesco? Yes they gain the PR high ground and are less attractive to FFA
and its protests, but does that make it worth it? No it doesn’t, and TSDG
farmers in my opinion need to stop focussing on the cost of production and
their milk price and come up with additional, tangible benefits for Tesco if
they want to maintain the aligned pool. A difference of9ppl plus between TSDG and First Milk
“liquid” is THE elephant in the room. Do I believe Tesco, Sainsbury’s, M &
S or Waitrose will ditch the aligned concept? No I don’t, in fact I believe the
likes of Morrisons will have to follow suit and come up with a similar scheme.
Morrisons is on the radar and its commercial team is squeezing processors and
playing ducks and drakes with its sourcing policy. Until Morrisons demonstrates
it is as serious as others about supporting UK dairy farmers it will remain
firmly on FFA’s radar in blue flashing lights.

Those
retailers who have no clarity will be under suspicion for buying dairy products
cheaper and exerting more downward pressure on farm gate milk prices. It’s the
hunting season, and FFA is rooting out retailers, food service companies,
discounters, caterers and any dairy customers who are exerting downward
pressure. Those who declare their position as supporting the industry get a get
out of jail free card while others may find their name is associated as one
taking money off farmers, and with that comes the attention of Handley and an
army of angry farmers.

Finally,
hats off to Arla for its high profile and positive “Support our farmers”
campaign to link its owners, with its brands, with consumers. It’s a brilliant
campaign and I wish it well. We need more like it. DairyCo take note!

The
dairy industry is in crisis.Globally
farmers have responded to higher milk prices by producing 5% extra milk than
normal, which has outpaced the predicted annual increased demand (+2.5%) by a
factor of 2 to 1.Marry this to the
Russian ban, plus a Chinese cooling in demand, and prices have gone south big
style.

With
Russia it’s a political ban that has created a vortex all farmers are paying
the price of. The Russians buy the equivalent of 1.5% of total EU milk
production, predominantly in the form of around 300,000 tonnes of cheese and
butter.

The
Commission has stepped in, agreeing Private Storage Aid (PSA) to include most
types of cheese. Note, though, PSA for between three and seven months (the
maximum) will end at the same time as the EU’s spring flush, which is not
smart. Consequently the Irish are lobbying for a one year storage period to
coincide with what is hoped will be the end of the ban.It’s a good shout, but it’s of minimal value
to any processor who needs cash in the bank now.Cheese in storage is not the same as cash in
the bank.

There
is now serious lobbying by various member states for the Commission to do more
to bring stability, and a more confident outlook for the industry.A front-runner is to remove butter and SMP to
intervention but at an inflated price, as opposed to the current 17.5ppl IMPE
price.The Irish are calling for the
IMPE safety net to reflect current production costs with others suggesting a
revalued IMPE north of 23ppl. There is also a push for export refunds for
processors seeking alternative export markets to replace lost Russian sales.

PSA
and intervention will help balance a depressed market, however, in reality all
they do is take product off the market now, only for it to reappear at a later
date when the market conditions have improved.

There
are even rumblings of pressure to retain milk quotas beyond the 31st March
2015. This has triggered a mini run on milk quota to the point that we now have
buyers outnumbering sellers by a factor of 9 to 1. Add to this the imminent
21st October deadline for trading single farm payment entitlements and a host
of claimants keen to realise some cash for their 5ha or less of entitlements
and our office is buzzing!

Not
long ago significant numbers of dairy farmers pushed for their milk price to be
linked to commodity prices. Many succeeded, but now the cream has turned sour
and some of those very same farmers are claiming we are “an island of fresh
milk consumers and are divorced from world prices”. That’s called picking and
choosing when it suits!

Others
took advantage of short-term contracts linked to commodity prices. Some simply
joined the growing numbers of milk tarts who signed-up for the extra money, and
as soon as someone offered them an extra 0.5ppl in went their notice. But for
some it has ended in tears: large and small producers who are either out of
contract or under resignation have nowhere to go, and no processor really wants
them. Few, if any, processors are recruiting.

Those
who have secured a safe home for their milk need not worry.For some of the tarts it’s a simple choice of
either accepting a poor world commodity linked price or exiting the industry.

Processors
are not exactly sitting back smiling, because some have invested heavily in new
facilities, which need to be full to capacity. They don’t want producer
confidence dented to the point farmers either cut back on production or leave.
Sadly for some that decision has already been taken, though.

Those
who went public last year with the claim that we should increase domestic
production have now either gone on mute, or gone all together. Some clearly
aren’t here (in the real world) at all. And this brings me to a press article
from Mole Valley Farmers only days after a dozen or so milk price cuts,
including the infamous 3ppl First Milk one!The headline was “Drive for more litres in light of low feed costs”. In
the article I was gobsmacked to read the conclusion that “it is well worth
pushing for extra litres this winter, despite the recent drop in farm gate milk
prices.” Dr Chris Bartram, Mole Valley’s Feed Solutions, Head of Nutrition,
went on to say that, at current feed prices, “That brings an astronomical
possible milk price to feed cost ratio of 2:5 to 1 based on an average milk
price of 30ppl”.

Well
Dr Bartram, it may be good for your employers to push for extra litres in the
hope it helps maximise the output from Mole valley’s feed mills, particularly
the new one in Ayrshire, but it is NOT going to help processors, or the milk
price right now! The days of an average UK paid out milk price of 30ppl have
gone for most and the evidence was before your eyes prior to the article!

In
this edition I was hoping to write about the review of the Voluntary Code but
more than seven months since its announcement and all is silent. Yet,
initially, it was “expected to be concluded quickly, by the Spring.” Surely the
review chairman didn’t receive a postbag of farmer comments? On that score I
have asked for details on the number of submissions he received, excluding the
staunch defenders of the code eg the NFU and NFUS. More on that soon!

Finally,
two requests: first to First Milk. Please rename your so-called liquid
contract, or merge liquid and manufacturing and just have one. It’s not a
liquid contract any more it’s predominantly an ingredients or commodity one. My
second one is for everyone to keep an eye on comments relating to Morrisons. It
is currently out to tender for its liquid milk requirements. If Dairy Crest
retains some of it, for instance, and then issues a comment to the City similar
to when it retained the Sainsbury’s contract in 2013 (“Although the conditions
of the contract will change from 2014 our on-going cost reductions are expected
to offset any financial impact on our business” i.e they got the milk much
cheaper!) then we will know Morrisions have screwed the processors. And we
can’t afford for that to happen to the liquid processors. It is also not right
or ethical for Morrisons to assume that the processors will simply pass the
shortfall back to the farmer. That’s the attitude that prevailed before SOS
Dairy, remember.

I open, again, with milk prices and what is a never-ending stream of bad
news.Chinese demand has cooled and the
12-month Russian export ban is a disaster, with 1.6ppl wiped off the milk value
in a matter of days simply on the back of cream values crashing from £1380 to
£1100 a tonne. And that’s before we consider other commodities!

Around 300,000 tonnes of EU cheese has to find a new home.For processors with ageing cheese in store
its value is dropping daily. We all know that as prices tumble rejections
increase for failing to meet quality standards. That results in distress sales
in fragile markets, and this usually means dairy farmers pay the price.

Dairy prices were relatively stable until 2007, but major volatility is
here to stay. These are very tough times, and the only partial relief for
farmers comes from falling feed prices. We are in the era of extreme
volatility, which mirrors that seen in energy, equity and currency markets.
Lower prices will result in restructuring, consolidation, mergers and
acquisitions but for those in trouble buying will not be an option.It will force out both weaker and uncommitted
processors and farmers.Be warned.

As we head closer to 2015 and the end of quotas dairy farmers need to be
in-tune with world price movements because additional EU milk output will have to
be exported. But I do have an issue with those who should explain to dairy
farmers exactly what’s coming down the road. Currently some shy away and don’t
say it as it is, fearing criticism. But the information is there for all to
see, and just needs to be interpreted in straight-forward farmer friendly way
that links commodity prices back to farm gate prices.

Although the Commission has dismissed outright any continuation of the
quota regime, unless production slows down it will soon be under immense political
pressure to come up with an emergency plan, whether it’s private
storage/intervention or a voluntary quota/supply management scheme.Most of you will be glad to see the back of
EU quotas and we could argue the pros and cons of what nearly 30 years of
quotas have delivered. The question is, though, will you enjoy greater
prosperity in the new non-quota world – one that is certain to be anything but
a soft landing.

Some farmers will wake-up and find they have nowhere to go but to exit
the industry. Others have expanded, having ambitiously (and foolishly)
stress-tested their milk price at 30ppl, and who are now facing the winter
knowing it’s going to drop below this level with some potentially facing a 25p
/ 26p milk price by the end of the year, or next Spring.Throw in an interest rate rise and the odd
struggling processor and it’s time to buckle up.Oh, and don’t shoot the messenger. As one
reader said: “I find your observations interesting and sometimes quite
frightening.We as farmers are very good
at just burying our heads in the sand and hope things go away or just hope
someone else will come along to sort it out.”

Farmers across the world were confident and increased milk production by
chasing the rainbow of growing global demand, particularly from Asia. When they
got to the end and found the pot of gold they were mesmerised. But it was too
small to go round, and now it’s only fools gold to be found.

And it’s no good moaning and groaning: we’re in the global market now!
Which brings me to the NFU Scotland’s recent press release headlined “Milk price cuts must reflect market place
reality – Union calls on processors to pay based on performance”. This
really did have me scratching my head. On this basis a 40%+ drop in global
prices in less than five months means the NFUS effectively endorses further
cuts!

To pay a milk price based on company performance is, on the face of it,
outrageous and naïve and means a poor performing company would be justified in
dropping prices, leaving farmers to take the pain. But having thought about it
further perhaps NFUS were sending a very clever coded message that it would be
better for a poor performing buyer to drop the farm gate milk price and risk
losing suppliers, so long as that gave it a better chance of successfully
restructuring and repositioning itself for the future. Certainly some buyers
found themselves very stretched recently.

Naturally when times are tough there’s a lot of focus on the senior
management of a business. None more so than First Milk, as readers of The Scottish Farmer will know. In a
recent issue David Handley demanded that the co-op’s Chairman and Board should
all resign en-mass. In my opinion the only people entitled to call for the
resignation of its senior management are First Milk’s members. They decide who
runs their business. Personally I think we are in stormy, unchartered waters,
and I’m not sure it’s right to change the people in charge of the ship at such
a time, or that the outcome will be different with new management. Inevitably
Handley’s comment brought a response from one of the firm’s area reps and
second row bruisers, this time from Willie Lamont. He likened Handley’s call to
a tired old football chant, and one akin to that of Manchester City fans
calling for the removal of the Manchester United board.Now come on Mr Lamont, Handley is no Man
City, but more like Brian Clough!And
come to think about it, you can’t make out First Milk is a Man Utd. As I’ve
said before I reckon it’s a Millwall!

Meanwhile, in the office, quota trading is very unpredictable with
around one deal a day on average.Entitlement trading is far more active as many farmers attempt to match
the Entitlements they hold to the area of land they farm ahead of the 19th
October date.Just like milk quota, it’s
a buyers market and offers a sensible return in less than a year for those in
the market.

Back in February 1999 a dairy farmer
gave a paper at the RABDF conference stating that “leadership in the British
dairy industry has, with few exceptions, been poor.” One exception has been the
brilliant David Dobbin, chief exec of United Dairy Farmers in Northern Ireland.
At this year’s Dairy Industry Newsletter Conference he made another telling
remark (one of many in his career): “our industry is great at producing
strategy documents, but few of the authors have the leadership to deliver”.

The latest document is the UK dairy
industry’s ‘Leading the Way’, which was unveiled in Westminster recently. We
also have ‘Compete to Grow’ - a vision and strategy for the British dairy
industry, which was billed as the culmination of “ground breaking consultation on
the future of the sector”; ‘The Dairy Survival Plan’; several Dairy UK White
Papers, and ‘The Dairy 2020’ sustainability inactive, to mention a few recent
ones. In most cases the document sets out a plan, a vision and a strategy.

We seem to have an annually recurring
addiction for someone in the industry to produce a strategy document, and for
all involved to pat themselves on the back whilst they drink wine and eat
cheese at the launch event. But Dobbin questioned what, if anything, gets done
– and I agree with him.

Having a plan or a strategy is fine
but putting the words into action is something entirely different and demands
real commitment. It needs personalities who make things happen, not ones who
are seeking short term PR brownie points. “We used to build cars and ships now
we launch Dairy Strategies,” he said.

He then talked about our perceived
gold standards and the belief some farmers and their representatives have that we
produce to higher standards than Johnny Foreigner, and that British is best.
But what, exactly, do foreign consumers associate with Great Britain? We have
had, he said, BSE, FMD and the burning Pyres, The Horsemeat Scandal, TB in
cattle and more recently negative headlines from the fact we were daft enough
to take the Chinese Inspectors to an English cheese factory that doesn’t export
to China - which failed and resulted in all exports being temporarily banned.
Perhaps we are not as clean as we think, and we are great at scoring “own
goals.” If any of these strategies are going to succeed our image has to
improve, and the own goals must stop.

Now milk prices. Oh dear. On the world
scene the news has been dominated by the disastrous July 15th GDT
auction results, which saw another 9% slashed off the auction’s average price
in just weeks. And this is despite the fact that Chinese imports of WMP in June
were double those in 2013. Talk of prices bouncing back was killed overnight,
and prices have now dropped around 40% in less than five months. That’s
meltdown that’s is! Prices will bounce back but it will be several months, not
weeks before it happens probably.

We were all warned that dairying would
have to cope with volatility but this is looking like extreme volatility- and
that’s while quotas are still in place! Let’s hope 2015 brings a price boost
because the remainder of 2014 is starting to look dark and grim. Having said
that it’s the margin which matters and falling feed prices will offer some
relief.

Different companies have different
strategies for communicating milk price movements to their farmer suppliers.
Some are direct and factual with no spin, some seek to deflect attention
towards competitors, others roar with indignation about the injustices of the
Voluntary Code, and some attempt some crafty creative accounting in an attempt
to curdle the milk cheque. Two recently caught my attention:

First Milk were the first milk
purchaser to drop their standard litre price bellow 30ppl. The reasons given
behind the move were sound, but in communicating the drops to its members
chairman Jim Paice once again chose to fire another shot at Arla. The letter
read:

“As
you may have seen Arla have reduced their price from this week, almost a month
earlier than us, citing the negative trend in global markets. Our analysis of
their price and the deductions which they apply means that our actual price
paid will still be more than the Arla AMCo price for most of our producers.”

This claim over-egged the pudding and
was poorly researched and while I do agree that Arla’s headline price is not
the paid out price for AMCo producers its price is certainly not below First
Milk’s. However two other points crossed my mind in connection with Sir Jim’s
claim to his members.

Number One is that the more accurate
comparison between the two company’s prices should be between the First Milk
price and that of Arla Milk Link, as both have been in existence for exactly
the same amount of time, began life at a similar size, and in the same
political environment (unlike Arla Foods Milk Partnership, which migrated into
AMCo this year.) Number Two is that this is the second time their Chairman has
had a poke at Arla, who, are after all, are a fellow dairy co operative. OK, so
one whinge at a competitor everyone can live with; two pops (without another
competitor being highlighted) and it looks like a gripe: if he makes a third
one-directional whinge it will look like an unhealthy obsession.

The next milk buyer to cross my radar
was Freshways. It has shocked a number of its producers who have had cell
counts and Bactoscans in the penalty band, with the sting being that these
producers will have deductions rolled back to 1st January. Two
suppliers claim the move has hit them with deductions of £24,000 and £30,000,
and say that the company turned a blind eye before when milk was short, but is
now making the move to generate cash. It appears some of the so-called farmer
representatives have refused to get involved.

Other milk buyers in this situation
send a fieldsman to offer assistance and advice to the farmers on how to
improve. Why can’t Freshways do this instead of hitting the farmers with a huge
bill, I wonder? I guess that wouldn’t generate anything like the same amount of
cash, but it would generate goodwill, and that is hard to place a value on.

It’s now only a matter of days before
this year’s NEC/RABDF Livestock Show and while I do subscribe to Darwin’s
theory of evolution it does appear that a number of the RABDF’s changes are
moving the event further away from its origins as a grass roots Dairy Show.

This year Arla, which processes a
quarter of the UK’s milk, has pulled out and will be concentrating instead on
consumer-facing promotions with its new Anchor cheese brand. All eyes will be
on whether our other two big processors, Dairy Crest and Muller Wiseman, decide
to return to the event in 2015 because it’s a certainty that it’s not a cheap
event to attend, especially given it’s a two day event and it is migrating away
from its core roots. Some of its events are bordering on the type featured at
the CLA Game Fair later in the month. But let’s not pre-judge, and I hope the
RABDF’s direction delivers a successful show.

This year’s DIN conference was once
again a unique gathering of a number of the world’s dairy brains who debated
“The China Dimension”.

The consensus was that the future of the
European dairy industry will be driven by world milk price levels, as governed
in particular by China and Russia, where the dairy power lies. To keep abreast
of the current increase in demand the world has to add the equivalent volume of
the whole of New Zealand annually.So in
10 years time the world will need to produce 10 times the annual output of that
country today.

EU milk consumption is more or less
static, so any increase in production, post quotas (in ONLY nine months time),
will have to be sold on the world market. Indeed one speaker at DIN predicted
that the EU will become the world’s largest net dairy exporter in a global
dairy market which is currently equivalent to around 50 billion litres per
annum, and which is predicted to rocket to 90 billion by 2024.However, with the statement came a wealth
warning. We are in for very volatile prices, which the European Commission is
unlikely to manage unless we end up with a serious crisis.

China is rich in natural resources,
and has a huge population where quality dairy products remain aspirational
totheir consumers. They believe dairy
products are an integral part of a healthy diet, particularly for children.

China consumes a serious amount of the
world’s milk production - one more cup of coffee a day for even a few of its
1.3 billion population would send global dairy markets into orbit. Equally, a
sudden slow down in the Chinese economy would be a disaster, and potentially
kill dairy markets overnight.

In recent years adverse weather
conditions, outbreaks of Foot & Mouth & TB, together with high prices
for beef cattle have resulted in a reduction in Chinese milk production, which
for 2013 amounted to a fall of 5.7% to 30 billion litres. The hike in beef
prices resulted in thousands of small back yard dairy farmers quitting at a
much faster rate than the larger commercial farmers could match.

Couple this with the acute shortage of
fresh water and irrigatable land and Chinese businesses have decided to produce
dairy products in other countries.

Dairy companies like Yashili are
piling into countries like New Zealand, and are building factories to ensure
they control the production and can guarantee quality to their standards.
Yashili alone are now exporting 1,000 tonnes of powder from their factories in
New Zealand to China each week, and it is one of a number ofChinese investments in the New Zealand dairy
industry which will see 13 new infant formula plants built in six years.

New Zealand, and other countries,
could soon become satellite countries with their land and resources used to
supply high quality dairy products to China, where consumers do not trust their
own dairy products. This could easily leave a shortage of good quality food for
their own country.

Chinese dairy companies, particularly
those producing infant formula, have had a number of food scares to contend
with and while they have tried every trick in the book to persuade their
housewives to buy home produced dairy products the reality is the damage is
done and the trust has evaporated.

Let’s all pray that China’s insatiable
appetite for powder and milk products continues, as it is the global milk price
setter. It looks that way for now, and the next 15 to 20 years look very
exciting for the world’s dairy farmers. Predictions from IFCN suggest that
China will be responsible for buying around 60% of the world’s traded dairy
products. Whether we want to be involved in the global dairy market or not is a
big question for us, but domestically the magical liquid premium has almost
vanished overnight as we all look to China where a staggering 20% of the
world’s population reside. It’s mind blowing and all roads now appear to lead
there.

Some of our processors are chasing the
opportunities, notably Arla, Woodcocks and last but not least Dairy Crest,
which is investing around £45 million to manufacture de-mineralised whey
powder. This is a base ingredient for baby food and much of what Dairy Crest
makes is likely to end up in China. And for good reason -20 million plus babies are born each year!
Production will start at Davidstow in less than a year and, given the mechanics
of getting product into China, it is inevitable that Dairy Crest will partner
with a local agent to open the market. It’s not simply a case of producing
infant formula and shipping it to China. Chinese standards are the highest in
the world and for baby powder it has to be produced to pharmaceutical grade
standards. Dairy Crest is likely to have one attractive USP in its ability to
export product from nominated farms from a tight geographical area.

As for the majority of the UK, and its
farmers, well I have to agree with a comment made over a year ago by Mr Jim
“Now You See Him Now You Don’t” Paice, who could not understand why the UK
imports dairy products from countries where they have a higher cost of
production and higher farm gate milk prices. He commented that as a net
importer we should have a high milk price, just as Italian farmers do.If we are going to capitalize on China, en
mass, we have a lot to do, and need to get our market sorted out first perhaps!

Last
year I attended the third NFU Producer Representative Summit, and
took a particular interest in a talk
from Bridge Ability Ltd, on the topic of “Conducting
Professional Negotiations.”I
recall the speaker stating that
“you can’t change the hand you are dealt but you can change how you play it”, followed
by the line that “a negotiation
has three stages - propose, repackage and agree.”

At the meeting I declared that
all those in the room who claim to represent producers and do any sort of
negotiating should attend a course and achieve a standard. I then decided it’s no
good me getting on my soap box, so having
communicated the training idea to DairyCo I was pleased to see a range of AHDB
training days on offer over Christmas and the New Year. So I duly signed
up to test the water at Stafford for the negotiating skills course funded
through RDPE. Attending it left me feeling that perhaps
DairyCo and AHDB were flogging a dead horse with a farming industry who either
think they know it all, or feel training courses are a waste of
their time and they would be more productive shovelling corn or shit. Only five
farmers turned up at the course I attended and attendance numbers elsewhere had
evidently been disappointing.I was
pleased I went, though. I learnt a few new tactics and
tricks. What a shame quota trading ends soon,I hear you shout!

In April I
wrote about Arla and posed a few questions on its pricing. A
big thankyou to all readers who took time to
email in response. Whilst some responses were clearly
written through gritted teeth and clenched fists all agreed
Arla was having a positive effect with quotes like “at last we have a
progressive cooperative in the UK, which is long overdue".

A significant number of emails
came from Arla members and were related to
the controversial butterfat reconciliation deduction or Fat
Tax.

Most questioned why is the 0.75ppl fat tax/butterfat adjustment,
which manystatedwas
a covert price drop, applied across the board to all producers,
as opposed to targeting those who are producing low fat milk. On 1.6 billion litres it’s worth a cool £12 millionwhich farmers are losing until
butterfats improve.The thinking was
along the lines that it would be fairer to charge the
offenders, in a similar way to
how seasonality operates.The
alternative view was why doesn't Arla simply cut the price by 0.75ppl and
offer an incentive to produce more butterfat. No
doubt the arguments will run and run!

A few months ago I visited its new
Aylesbury plant for an at the coal face non-tourist
look around the facility.One word sums it up it: incredible!
Especially
the robots which pick up the milk trolleys and take them to the
store for dispatch. The factory is super-efficient.

While there
I met Ake Hantoft Chairman of Arla Foods amba,
who’s enthusiasm is infectious. In his own words “It’s an extremely exciting
phase for us in the UK.”

When you talk to him about Arla
he does not think Denmark, Sweden, Germany, Belgium or
GB (and now The Netherlands, of course) he
thinks of the whole company, and its "big
family" of 13,500 farmers. Ake placed
considerable importance on his values amongthe board members, particularly on their behaviour and the importance that they conduct
themselves professionally.Arla’s
progress since 1970 is impressive, and
it is now the 6th largest dairy company in the world employing
16,000 people. The UK is its biggest market accounting
for 26% of Arla’s global turnover. It welcomes a
new boss in the Autumn, of course, but I can't see much changing.

During recent weeks I have
encountered two very different milk buyer attitudes. Paynes Dairies claim to havehad only
one producer leave them to supply a competitor in the last 20 years. But recently it
received anotherrequest
to leave from
a significant producer who believed he could achieve more money per litre
with another buyer on a manufacturing contract. Paynes
agreed with him, had no reason
to be awkward or to argue with the farmer,
and decided that if he wanted to leave he could have the option to leave
earlier, by mutual agreement.The date of May 1st was offered,
for obvious reasons.Alas, at the 11th
hour, the decision by the producer was that it's the better the devil you know than the one you don't, and that the grass on the other side
of the fence wasn’t as green as it looked, and
part was, in fact, Astroturf. He went back.

Contrast this to the bizarre
stance taken by Dairy Crest, who rejected
any resignations received by email,
insisting they must come by post or be hand delivered!
Two of their Sainsburys supplying farmers were so incensed they jumped in the
car and drove from Devon to the firm's
London HQ in Claygate on resignation deadline day. It was a trip of
300 miles, and the comment was made that they
used no fuel for the trip because the vehicle was jet propelled with anger used as
the fuel! It’s
crazy that Dairy Crest should,
on the one hand, insist on all applications to supply
milk on its formula contracts be made via email, yet refuse to
accept email resignations.

It’s a fact that many notices are
tendered without a decision having been made to commit to a new buyer. In many
instances a few weeks of cooling off
and a reassessment of the facts leads to the retention
of the supplier. In Dairy Crest's case it
will need a lot of water to cool the discontentment
fire
in situations such as the one described above.

As I write spot milk prices
appear to have levelled at around 17/18p and production is showing signs of
levelling a few weeks earlier than expected. We can only pray production drops
because more milk = more problems = lower farmgate prices.

Irish dairy farmers are cursing
us for dumping our distress milk on their doorstep and impacting on their
fragile market. Oh, and I daren’t even look at the impact
the extra cheese we are making will have on cheese prices in a few months.But,
for sure, someone will blame the Irish if
prices collapse!

Whilst the long term future on
a global level looks good the reality that we will experience very volatile
pricing is now upon us and there are no immediate signs of a U-turn as prices
continue to head south.Middle
ground processors and their corner shop,
garage and convenience store customers are taking a beating with the 4 pints
for £1 offer.Processors may not be losing customers
but they are losing volume.

One told me
their volume was down 15%, but they still send the same delivery
lorry on the same round incurring the same costs just for fewer
litres.The small shops and bottle milk
buyers/doorstep milkmen are finding it tough retaining liquid customers when
faced with 4 pints for £1. So it’s
a win win for the big retailers.They
squeeze out the small competitors plus doorstep
delivery milkmen and some middle ground processors.It’s the dairy equivalent of ethnic
cleansing. And it's working quicker than we may like to admit.

As I write the spot
price is 22 to 24ppl and weakening. And we are still six weeks away from peak!
We are producing too much milk in a weak market and I am extremely nervous
where it will end. We have insufficient processing in the UK and I can’t
contemplate the effect if one of the Westbury driers, or a large French or
Irish one were to breakdown.

Dairy Crest
took a beating in 2012 with its 2ppl price cuts and for various reasons it will
be behind the front runners on price cuts this time. I say that knowing DC is
currently off the pace even in its Cat City heartland. However it has issued a
statement stating that it will be competitive - it just didn’t put a time-scale
on it. Even when the price corrections areconfirmedmany processors will be
struggling to compete with Arla’s and Muller Wiseman’s milk price.

The falling
market is not just a UK phenomenon it’s European and worldwide, with every
dairy region producing more milk. Marry that to the fact UK cheese production
has rocketed to record levels, demand from China and Russia has slackened and
there’s a lethal cocktail.Arla is odds
on favourite to be the dam buster, announcing a May price correction -
especially now Freisland Campina has cut. And even when that first correction
is confirmed a further correction is almost inevitable unless the global market
stabilizes. Oh, and when prices fall don’t bother calling in the FFA team – it
can’t beat market forces!

The long-term
solution is that we don’t churn out heaps of milk until we have more processing
capacity, with product destined for the world market. Arla's target is for 40%
of its revenue to come from outside the EU by 2020. If our retailers, corner
shops, garages and food service businesses won’t pay for the milk we need to
turn it into exportable products and bypass them. Woodcocks is building a
drier, but we may still need more if milk volumes are to stay as they are.
Please don’t listen to the jokers who say get on lads and produce 2, 3 or even
4 billion litres of extra milk until we have the capacity to process it and
have some serious marketing people who can capitalize on the world market
opportunities.

But a price
correction is not my main concern. That is whether the drop will be retained by
processors or whether some will be forced to hand it over to their customers
and effectively kick start a downward spiral. We will never know who keeps the
money and who hands it over. History tells us some processors are likely to
knock on buyer’s doors and offer them the money on a plate to get more
business.

Domestically,
despite the devastating effects of TB, we have the heifers and cows in the
system and even the low cost New Zealand style producers are buying tonnes of
feed to bump-up production. On top of that we are still importing heifers from
regions who are producing far too much milk and don’t have farmers willing to
pay the prices we are prepared to pay.

Milk purchasers
are under pressure, and some farmers appear oblivious to what’s happening. I
recently heard of one farmer who was selling liquid milk on a three month
contract who refused a 1st May 1p price drop, believing it should be
a price increase. He decided to change buyer, convinced it is immune from the
market place and will hold his price until the autumn when prices will increase
again. He, and many others who are thinking along the same lines, are in for a
reality check.

Regrettably
some farmers have based their decision as to who to sell their milk to on
either short-term false price promises or unsustainable headline prices. It
never ceases to amaze me how little time some farmers spend examining the
businesses they propose to sell their milk to. For some it’s a case of let’s go
for the headline price and be dammed. “Clowns to the left of mejokers to the right! Here I am stuck in the middle with you,” as the song lyrics go.

When it comes
to processors we have the honest, the smart, the sharp and the porkie pie
tellers. One example of the latter comes in the form of those milk buyers who
utilise basket pricing. For example, as from 1st January the old
Arla AFMP price ceased to exist and some, like Freshways, replaced the AFMP
price with the Arla AMCO member price. This resulted in it paying its farmers
more money. Top marks, therefore. Others have dodged the issue and declined to
replace the lost AFMP price with either the Arla direct or AMCO price, so as to
keep prices lower. Thus the company which processes 25% of GB milk is not
tracked in these baskets. It’s outrageous and any so-called producer
representatives who have agreed to this should hang their heads in shame. One
example of a letter representatives should have clocked was from County Milk,
who gave suppliers the option to have a basket price with only Dairy Crest and
Muller Wiseman prices in or, alternatively, to include Meadow Foods instead of
Arla. I wonder why?

As intimated by
me a few months ago this year is heading to be a financial disaster for one or
more processors. They can’t survive buying the quantity of milk they are and
offloading the surplus on the spot market at current prices, and when the
proverbial hits the fan it will be the farmers who will invariably cop for
several weeks of unpaid milk.

Now quota.Some processors are contemplating withholding
milk cheques because of soaring production, and this has frightened producers.
Banks are instructing some farmers to play safe and get quota cover. I would
like to clarify a few myths. The super levy will be around 23ppl and the quota
is the same as it was last year at 15.3 billion litres. This includes
confiscated quota, which at March 31st amounted to 537million of
wholesale plus 11 million of direct sales. The market is on fire, which can
only be quelled by a combination of milk price reductions, weather or
production peaking and failing to meet the necessary levels to meet quota.
Meeting quota will take some doing but you seem set to give it your best shot.

Firstly I have to congratulate the
Woodcock family, who trade as Yew Tree Dairy in Lancashire for having the
foresight and commitment to build a large butter-powder plant alongside their
existing new liquid dairy. The plant will be up and running by mid 2015.

Carl Woodcock told me that the
dairy world is changing and the business simply has to change to survive.

It would be brave if not foolish for
Woodcocks to continue to have all its eggs in one basket relying on liquid milk
alone. With the new plant they will produce butter, WMP, SMP and concentrate
and the plant can be run flat out to process just over half the milk Westbury
processes. Alternatively it can be shut down for periods.

Up until now Woodcocks has remained
under the radar, but slowly growing and recruiting farmers. Now ithas firmly launched itself onto the UK, and
the European dairy map.

Recruiting farmers is not necessarily
the goal so don’t go beating down Woodcock’s door because, post quotas, there
are likely to be lots of options with the plant in terms of contract / toll
processing and buying spot milk in the post quota world.. I wish them every
success.

On the 31st January 2014 Arla Foods
increased the milk price it pays its 2,800 British owners by 0.74ppl.Under normal circumstances this would have
instantly triggered price rises from competitors, typically within 48 hours.
But not this time - with only one milk buyer (Barbers) announcing a substantial
price increase. I am excluding Dairy Crest’s formulae price rebasing too.

By the time you read this article it
will be at least 56 days since Arla’s increase and there hasn’t been a flinch
from its competitors. Not only that, but on the 25th February Arla directs were
notified of a 1.23ppl 1st March increase. Again not a murmur.

Two years ago we had milk buyers
dropping the price 2p, followed by another 2p and farmers weren’t happy. And
here we are, now, two years later, and one company is keeping the milk price
high and stopping it falling and some farmers are still not happy.In 2012 it
was the differential between the cream price and the milk price that triggered
the successive price drops. And yet that same differential exists today! It
is ONLY through Arla’s actions that the milk price hasn’t fallen by a similar
degree.

Following my last article and recent
news items in my free Friday news bulletin, I received a few emails questioning
my objectivity as regards Arla. A few asked me if I was in bed with the firm.
This really annoyed me. I would
therefore like to know how widespread this view is across the industry: to help
me would dairy farmers therefore read the following three questions and reply
by email with the answer (to lydia@ipaquotas.co.uk). Pick “1” if you agree
with the first question, “2” if you agree with the second or “3” if you agree
with the third:

1) Arla’s milk price increases have
prevented the UK milk price from falling this spring. This is a spiffingly good
thing for dairy farmers, and worthy of a bouquet or two.

2) Arla’s price increase has prevented
the UK milk price from falling, but that’s a very bad thing indeed.(Please elaborate on your answer to explain
why.)

3) Arla’s price rise has made no
difference whatsoever to milk pricing.

Believe it or not I have had two very
long emails from two farmers wives who believe that number 2 is the correct
answer!

The fact is that non-Arla farmers like
their milk prices being kept high, but hate the fact it is Arla – a farmer
owned business – that is doing it. Why is that?It’s the same mentality that some have of “I’m not bothered what my milk
is, so long as it’s higher than my neighbour’s.”

I have never shied away from
controversy in my articles and as much as it won’t suit some readers I wish to
put on record that I can’t currently see a flaw in the Arla strategy.If you can, then email me. That’s my
challenge to you. I ask people who hate Arla the same question, but those who
really understand its strategy reluctantly admit they can’t see a flaw either.
Their only vulnerability is to volatile global markets. But Arla hasn’t got all
its eggs in one basket, as most companies in the UK have.

I am praising Arla at the moment,
because it is doing a good job for ALL farmers, not just their owners.Anyone who doesn’t see that doesn’t
understand what is happening.But there
will be a time when the market turns, Arla drops the price, others will follow,
and the comments won’t be as positive. If the moaning farmers who had spent
time emailing me because I have written about Arla had spent the time writing
to their own milk buyer instead, asking for the same price, then maybe the UK
price would be moving forward a bit more!

The recent price war battle between
retailers with 4 pints for £1 or less is causing pain to many, particularly
those operating in the middle ground where most can’t purchase the milk from
their supplier at that price.Corner
shops are pressing wholesalers for milk at lower prices and price support to
retain business.It’s a disaster - they
all want to pay less for liquid milk. This time, though, with the Arla factor,
it won’t be the farmers’ paying.

Meanwhile, production continues to
rocket north at over 10% on last year. Surely it can’t continue though? There
are pundits and farmers believing production will continue at these levels
throughout the flush. I doubt it, and it could be the cows have milked
exceptionally well whilst indoors and the so-called spring flush will be
smaller than predicted (I can only pray this will happen). One bean counter has
calculated that at peak there could be an extra 100 of our biggest tankers
seeking an outlet for the milk. That’s an eye watering additional 2.3 million
litres/day, which will see the current spot milk price of 31p/32p plummet and
exerting more pain and suffering. If that materialises it’s likely several
farmers and processors will be on the brink of a disaster.A price correction is coming our way. but
let’s hope it’s gradual and not an overnight big bang.

This year's
show season will be soon be with us. Last year,
though, was
not a good year for showing, public image wise. I
refer to the extensive negative national media coverage of a cheating
investigation involving at least one exhibitor at The Great Yorkshire Show. An
announcement on the outcome is long overdue and has been delayed -allegedly - due to a wee chat of the legal sort
between
the Show Society and an exhibitor. We will have to see what those gritty Northerners, headed
by show director Bill Cowling,end up doing.

The Daily Telegraph
headline was “Mystery of super glued udders grips
farm show” and it damaged the image of the whole industry. We have just over 11,000 GB dairy
farmers of which around 300 plus enjoy showing their animals across the
country. Yet among those 300 we have a handful of five or six hardcore dairy exhibitors, a similar number of
stewards and show organisers who are selfish and continue to play hide and seek
with cow fixing. In doing so they put
at risk the image of the whole industry.It’s the same with a football crowd of several thousand at a match where a handful of
hooligans steal the headlines and tarnish all of the fans.

The RABDF were the first to
take a firm stance on cow fixing following which, in
2012 and 2013, they encountered no problems.
Holstein UK as an organisation is shoulder to
shoulder with RABDF, with both aiming for all cattle
owners to be able to compete against the professionals on a level playing
field. This includes the careful selection of non compromised stewards and vets i.e ones
who can’t be influenced,
shall we say.

It’s
almost a year since the 2013 Borderway UK Dairy
Expo, following which several farmers and trade exhibitors contacted me allegingthat some of the show cattle there might havehad their udders fixed.I gave a number of people involved
ample opportunity to address the accusations, in particular both Canadian judges,
and the organisers. But they choose to remain silent and,
while a statement was issued,
it did not specifically reject the accusations.

On March 8th the
2014 Dairy Expo event with judges from the US, Canada and Holland will be held.
This marks the start of the 2014 dairy show season.The
indications are there will be increased covert surveillance at shows from
farmers, judges, organisations and vets who
are all keen to protect the image of British
dairying and who will blow the whistle on any cheats.
Show organisers you have been warned.

The review of the Voluntary
Code by the Rt Hon Alex Fergusson has caused a bit
of a stir.Expert dairy lawyer, William
Neville of Burges Salmon, gave the Code a beating at this year’s Semex
Conference with several of his comments and claims irritating both George
Jamieson (NFUS) and Mansel Raymond
(NFU E&W).

The announcement of the review
was coupled with the requirement that all submissions be made to the Code’s staunch supporters as in NFUS, NFU
and Dairy UK, rather than direct to the Chairman.
This has resulted in several comments that the review
will be a
waste of time because they have “almost certainly agreed what the report will
state and will sift and vet any adverse submissions”.
After all,not all processors or farmers
are members of one of the organisations and it’s
a certainty that all farmers need a voice in the debate.

For what it’s worth today the Code is holding back
prices and freezing farm gate milk price movements from processors who are
under the Code who fear the three month resignation rule.The word is that the NFU’s
are touting an alternative option for co-op members to sign up to.

Arla’s
recent decision to utilise Westbury to process milk concentrate from Germany
following a factory fire at its Pronsfield plant is understandable,
but has caused a few shivers among GB processors.

Yes, it
will cost Arla members money to transport the concentrate from Germany to
Westbury.Equally important, though, is the reality it will also result in less GB milk
being bought by Arla and First Milk during
the flush. This is likely to exert even more pressure on weak spot prices for
those with no or insufficient processing to deal with the increased peak volume
of milk. That’s not Arla or First Milk’s problem because their duty is to
their members and that’s the end of
it.Judging by at least two emails I
have received the penny has not dropped for some producers that Westbury is for
the benefit of the members of the two co-ops and is NOTfor the benefit of all, like some British industry
charitable organisation. A co-op’s
aim is simply to extract the maximum value from each litre of milk it
processes or trades
and to pass back the financial benefit to members to ensure its
farms are sustainable and viable long term. Nothing more.

This winter is delivering
record milk prices, however, I recognize the battle some are having with the
severe wet weather and TB. The signs
are that confidence is slowly emerging and in some instances I would almost state
some appear to be over confident. Domestically prices are holding firm on
account of the Arla factor who, in my opinion; now influence all GB liquid milk prices.High international commodity prices are
cultivating confidence and the main fear is whether they will change overnight
only to be immediately followed by downward farm gate price movements. As one
leading industry guru commented to me its fantastic that dairy farmers are at
last talking about return on capital. This was followed
by a progressive first generation dairy farmer who commented “Ian I am now
doing forward figures for the taxman, having
only done them for the bank for decades.”

Where industry bodies and
officials are encouraging you to
produce more milk you need to satisfy yourselves that, post quota, such
production is sustainable. But I say investigate
their reasons for believing in that increased
demand and that your buyer will be genuinely
able to capitalise on it.Before
you put a long term noose around the farm's
neck or saddle it with significant borrowings make sure you understand the
potential negatives and any uncertainties.

Many dairy farmers have been
demoralised for years and I agree the outlook
looks more positive, but collective expansion of GB
dairying needs careful planning, especially in terms of processing- in particular
our lack of drying capacity which is an issue. We
certainly have no requirement for liquid processing capacity, where
closures seem inevitable.And
remember,EU milk consumption is more or
less static which means any additional EUmilk
production after the ending of milk quotas will need
to be globally traded.Let’s hope those Chinese continue breeding
and have the funds to pay!

Finally, I want to givea red alert warning for all of you to carefully check your
RPA 2013/2014 Start of Year Producer Notification. We have come across several
which are incorrect, ranging from one which showed 8,664
litres more than the producer was entitled to, to one which short-changed
the producer by a whopping 108,347 litres. Check your figures, in particular
the recent quota awards and if in doubt contact milk.quotas@rpa.gsi.gov.uk
requesting it re-checks
your 1st June 2013 Notification and confirms
the statement is accurate.

Whilst on the subject of quotas
I wish to lay to rest yet another rural myth. The total UK National Reserve
milk quota is 547 million litres and in the unlikely event we exceed our quota
the relevant National Reserve litreage is added to the available quota to
reduce or eliminate any superlevy.Whether
the UK will pay superlevy at the end of March 2015 is up for debate by some (but not
so far as I am concerned) unlike, the position in Southern Ireland where it is
equally clear that farmers will pay superlevy in 2014 and 2015 as a cost of
expansion to ramp up production post quotas.

“Milk production globally is exploding
mainly because increasing milk prices has brought about an almost insatiable
appetite for expansion.” That was one of my opening statements at this year’s
Semex Conference. Fortunately, the signs are that the increased flush of
European milk is set to be matched by increasing global demand with January to
July GDT product prices holding firm and, in the case of butter and cheese,
significantly increasing. For as long as China continues to hoover up the
world’s powder supplies it is likely prices will remain strong.

The likes of Arla and Dale Farm are
certainly maximising the global trading opportunities, especially after
Fonterra has suffered some nightmare product recalls and damaging PR. Only two
weeks ago it had to recall several batches of branded fresh cream. Its press
office tried hard to claim the recall was positive and demonstrated that “it
shows our consumers that a company owned by thousands of Kiwi farmers puts food
safety first.” But traders claim that not all customers take that view, and for
some it’s one recall too many as they seek out trusted European product.

Arla’s 3rd February price increase of
1 Euro Cent a litre was fantastic news for all UK farmers and should silence
the critics and anti-Arla suicide bombers who were convinced that come the New
Year it would drop its milk price, and thus give others the opportunity to
follow. The increase came at a time when some processors were gagging to see
Arla drop. But its move has effectively stopped prices from falling dead in
their tracks. The question now is will, or can, others follow the lead and
increase their prices?

If Arla succeeds in holding, or dare I
say further increasing farm gate prices through the European flush then other
buyers will be forced to keep up. If they don’t and a buyer blinks and cuts
their milk price they are likely to solve Arla’s ambitious recruitment targets
in days with a gift wrapped present. How long then before it closes the
recruitment door, I wonder? As it is Arla has delivered this latest milk price
increase based on its very strong global performance. It hasn’t increased it
only to be forced to go out and retrieve it from its notoriously hard-ball
playing liquid customers here. And that’s a huge difference to the situation it
was in two years ago.

Domestically the problem now is
whether we have sufficient peak processing capacity to deal with any distress
spring milk. This distress milk could drag some producer prices down or even
put one or two processors out of business. That’s my worry, because some
processors have realised their milk intake cannot be handled. They are the ones
set to be caught with no trunks on when the tide goes out. And, other than
First Milk, nor can they pick-up the bat-phone to Westbury and expect to have
their surplus milk toll-processed, allowing them to capitalize on global powder
prices too. The days are long gone when Arla or First Milk were so charitable.

At least one processor is rumoured to
have discussed its dilemma with a farmer representative in an attempt to do
some crafty creative accounting to adjust the pricing schedule without being
seen to be adjusting the price. Incredible. Meanwhile Arla continues to send
positive signals to all European dairy farmers, and a standard litre price of
35ppl might not be too far away.

In the space of a few weeks the COP
milk price setters of Tesco and Sainsburys have almost slipped off the
radar.In March Tesco will crunch the
numbers for a 1st May price for its aligned suppliers.It looks like they will reluctantly end up
adding another market related top-up, based on the Muller Wiseman standard
litre price and either the Arla co-op or Arla directs price as part of the deal
to pay at least the price their processor pays to its non-aligned farmers. If
Tesco were to stick rigidly to its COP formula then its price will fall. My
question is whether the retailer aligned COP model is broken. Is it indeed fit
for the future?Will it survive? Will
there be another fudge? Can, or will, retailers continue to have direct
relationships with dairy farmers in the future, especially post quotas?

Arla selling Westbury produced powder
at the fortnightly GDT auction also facilitates very transparent and honest
pricing, and a direct link between world prices and British prices. It’s time
for those buying liquid milk to wake up and smell the coffee. Powder prices are
not under pressure to fall, but liquid prices are under pressure to increase
thanks to them being dragged-up by global commodity prices.IF UK retailers won’t pay a market price for
the milk, developing countries will. We didn’t realize it at the time but the
Milk Link merger and the subsequent AFMP integration with amba in late 2013
looks as if it they were pivotal turning points for the UK dairy industry,
where dairy farmers gained a bit more power, respect and critical mass. The
anti Arla-ities won’t want to hear that, but it’s an absolute fact.

It’s a new competitive world and
perhaps it has taken some processors and retailers by surprise.The target needs to be recognized by all in
the dairy chain, and it is to pass back a fair price to grass roots producers,
which encourages investment and long-term sustainable fresh milk supplies. It
is not to pass back what’s left, as has been the case too often in the past.
That’s called scratching in the farm yard with the hens and that has been the
case for far too long. Now is the time for dairy farmers to soar high up in the
skies with the eagles. I hope no one tries to shoot the eagles!

The pressure no longer comes from the
retailers at the top pushing down on others and squeezing farmers until they
squeak. Now it’s time for farmers and their representatives and processors to
push from the bottom, upwards. For those with plans in place to expand to
capture this potential I say go for it and I wish you every success. This
industry is far from stagnating. It’s moved from its obsession with liquid
prices, strategies, contracts, COP contracts and the Voluntary Code into the real
global world, and, as I said at Semex, I’m more optimistic for farmers now than
I have ever been. This is indeed the closest I have seen to a thriving,
growing, sustainable industry and long may it continue.

Finally, I have to comment on the surprise
spike in the quota market recently. At its source was a rather unnecessary,
wholly misleading press release from Townsends Chartered Surveyors, which
ignited the market. The clear inference in it was that we could hit quota as
early as March 2014. I thought it was an early April fool, but several farmers
panicked and quota shot up from around 0.1ppl to 0.6ppl.For the avoidance of doubt it is impossible
for us to hit quota this year, and next year there will also be a huge hill to
climb to fill it. The utter garbage of the press release was printed by several
of our farming press (in this case comics) without so much as a sanity check.
The only positive is that at least it helps to prove there’s only one place to
go for sensible advice on quota! Next month I’ll find my address book and tell
you who it is!

The New Year begins with Arla
continuing to roll out its UK strategy, in what looks like another shrewd move
- to acquire the freehold of Westbury Dairy from the Lloyds’ receivers. There
can be no doubt that this plant, which came at a cost to many farmers who
invested at the start, is Arla UK’s pathway to the currently buoyant Global
Dairy Trade Auction and will be needed more than ever this spring. With a giant
flush expected the dairy industry would be in one heck of a mess without it,
with distress milk everywhere. Some might still prove to be a problem if production
overtakes our processing capacity, especially if it is coupled with milk coming
over from Ireland.

With Arla now owning the freehold
First Milk (a J/V tenant partner) has two choices: it can continue to be part
of the J/V with Arla, or could sell its share to Arla (or perhaps another
party), which, with SMP prices being what they are, will now be worth a lot of
money. First Milk could then utilise this capital elsewhere in the business. A
lot will depend on how much milk they have to put through Westbury, having
committed more than 40% of their milk to cheese destined for Adams Foods
(Competition Commission allowing, still).

During the past year or so I have done
a bit of travelling, in particular to two challenging areas for milking cows –
Norway and The Shetlands.

In Norway I visited one of the
largest herds (120 cows), producing 1 million litres via robots.

The farm’s margin was considered
"OK" at over 8ppl. However, the cost of production fails to account
for any family labour costs, a point I suggested they should address ASAP.

Dairy farmers there face special
challenges, where three consecutive dry days for silaging are considered a
luxury. Marry this to the huge challenge of attracting good employees due
to the huge competition from a strong oil economy, which pays exceptionally
high wages in comparison, and I am sure you get the picture.

The smaller farmers receive dairy cow
headage payments (excluded from the 8ppl margin) - with up to 16 cows at
£400/head, decreasing to zero for 50 cow plus herds. It’s called a multi-level
subsidy with rates in the less favoured northern parts higher than those in the
south. I guess one thing in Norway’s favour is the fact its oil industry
produces significant tax revenue, which is why its agricultural subsidy is
three times higher than the global average. Tine is almost a monopoly milk
purchaser, and processes 95% of the country’s milk with annual farmer
price agreements made between it and the two farmers’ unions.

In The Shetlands only four dairy
farmers survive now, with a total of 300 cows on islands with no trees or
badgers, but on very disadvantaged land indeed. This (at best) can only be
grazed from mid May to mid September. And they also have to contend with over
1,000 Greylag Geese, which hoover up their valuable grass in front of your
eyes. The best land is worth £2,000 acre. The milk goes to their own
co-operative processing plant, which has limited capacity, and when it’s full
they have to dump the milk. Their current price is 37ppl.

In both The Shetlands and Norway there
will simply have to be policy measures to protect dairy farmers, especially
from the inevitable price volatility. These farmers need a
subsidy. For Shetland farmers who are under CAP reform the move to flat rate
area based CAP payments looks to be painful, and likely to have a massive
impact on their future farming policy. Certainly few, if any, mainland farmers
would swap places with a Norwegian or Shetland farmer.

In Norway the entrepreneurial farmers
appear to pray for fortress Norway, much the same way Canadian farmers did with
import protection. And in The Shetlands they wish Tesco would shut up shop or
stop selling non-Shetland Isles liquid milk and cheese in their Lerwick store
for the identical price we pay in middle England, for example. They want it,
and others, to promote and support local farmers rather than crush them out of
existence.

I have always kept a watching brief on
organisations like Compassion in World Farming (CIWF). Just before
Christmas I received an email which was its take on the 12 days of Christmas
song. I confess it was very professional, and showed what those who promote
large scale units are up against. Our marketing and dairy promotion teams are
not in the same league as those of CIWF (or indeed the promotional films I have
featured on my website in 2013, as produced by dairy promotion agencies around
the world). In Britain we just don’t seem to have the flair and creativity.

I also keep an eye on the RSPCA’s
activities. For sure its press coverage in 2013 has slid from bad to worse.
Radio 4 did one of its Face the
Facts programmes on the organisation recently, where it was dubbed as
“heavy handed and abusing its informal power”. According to the researchers
RSPCA prosecutions have escalated “out of control” in the space of two years
from 2,500 (in 2010) to a staggering 4,000 in 2012, as have their joint raids
with the police. Only the Crown Prosecution Service (CPS) brings more
prosecutions than the RSPCA. It’s little wonder some suggest the publicity from
the prosecutions is viewed as helping to raise funds.

Like me you will be aghast to hear the
case of the 68-year old lady who was ousted from her cottage during an RSPCA raid
and told to sit in the garden in her nightshirt, or of instances where it has
seized animals and destroyed them (following which it was proven there were no
welfare problems). The interviewer also talks to a vet and a lawyer both of
whom have successfully assisted in defending people the RSPCA has prosecuted.
Their experience is that if you are successful against the RSPCA you are
“persecuted” and subjected to numerous referrals to your professional body
until you eventually back off.

But what riles more than anything is
the organisation’s insatiable appetite to stop the badger cull. Its
CEO publically called for farmers involved to be named, and for
a boycott of milk coming from the cull areas, remember. This was, was in my
opinion, bang out of order and should be condemned by all dairy farmers.
Perhaps its time for the CEO of the organisation to be invited to give his side
of the story at either next year’s Semex or NFU Conferences. I was a previous
winner of an RSPCA Freedom Foods Award. However given its negative 2013 press
coverage I think I will remove this from my CV. Instead I will sit back and
watch with interest to see if the organisation will ensure its reputation sees
a U-turn in 2014 and whether its campaigns are well-thought out, or whether it
will further deteriorate.

Finally, all the best for 2014. There
will be plenty to write and comment on!

“No one likes us, we don’t care”: such is the famous chant from the
Bushwhacker firm in the Millwall Football Club Den. It could also be the latest
karaoke song for First Milk, which new chairman Jim Paice has added to his list
of hit songs following his remarkable public outburst against Arla and Muller
CEO Ronald Kers through the pages of the esteemed The Grocer magazine recently.

The interview took place at the First Milk AGM only
hours after Sir Jim was confirmed as the co-op’s new chairman with The Grocer’s fresh foods editor Julia
Glotz, whilst yours truly was ushered next door to interview Kate Allum and
Adams Foods CEO Ian Toel. There were no fireworks there!

If anyone thought First Milk’s politically
experienced new chairman would use the opportunity to set out his vision for
the co-op’s future, and how he would stamp his mark on the business, they’d be
very wrong: “Jim Paice picks a fight as
he takes over First Milk helm” ran the The
Grocer’s headline! He certainly landed with a bang!

Before I come to some of the comments, and
responses, one of the rather surprising admissions from him was that he knew
the co-op had lost the ASDA business before
he accepted the job as chairman. Given that he accepted the job in July, or at
the very latest early August, with the official announcement made on 13th
August, it begs the question as to why First Milk only told members it had lost
the contract some nine weeks later on the 15th October. It’s a
significant time lapse, and, crucially, after the deadline for resignations to
be filed.

Jim claimed that Arla’s “aggressive bidding” had
damaged the whole of the UK dairy industry by undermining cheese prices for
farmers - pointing to the fact the only way Arla could make a profit from the
contract is to lower the price it pays to the farmers for the milk.

When I highlighted the interview in my free weekly
newsletter a number of First Milk members responded, with, naturally, the
majority in support of Jim’s attack. One of the best comments was from one of
its Scottish members: “We have a situation where two milk buyers (Arla, Ronald
Kers / Muller Wiseman) are doing a lot of willy waving stating they want to be
the biggest,” he said. Note, that’s not a ‘William’ trying to attract
producers’ attention but the 2013 Dairy Willy Waving Competition. I wonder who
will be crowned the UK Dairy Industry Willy Waving Champion.

But it also prompted counter comments. I quote:
“Today First Milk’s www.milkprices.com 1st December
milk price for cheese is 32.5ppl and the Arla Milk Link comparable price for 30th
October is 33.83ppl. On that basis if under-cutting the market delivers a
1.33ppl+ advantage one month ahead of the competition then crack on lads and
let’s have everyone under-cutting the market! In addition it has to be noted
that since the ASDA deal was awarded to Arla they have increased producer milk
prices by 2.33ppl. I guess Jim is really a politician and as one person
suggested you can’t take the politician out of the man.By nature with politicians it will usually be
someone else’s fault.”

Jim also claimed that “First Milk is the only true
British dairy co-operative.”As I will
come to later that is an erroneous claim. Indeed some state that First Milk are
now not so “pure” and are both British and Irish. There is, for example, South
Caernarfon Creameries, and what is now arguably the largest British dairy
co-operative (certainly the most profitable) United Dairy Farmers of Northern
Ireland.

He is quoted as saying: “There are people who would
be very happy to see First Milk fail ...” Personally I haven’t heard anyone
say, or even imply, that and having had the catastrophic collapse of DFOB,
Amelca and Westbury the last thing this industry wants is such talk because it
costs more than just money.

Let’s hope this rant was a playground slap from
Jim, because he has picked a fight with two heavyweights at the same time, and
to succeed he, his co-op, and its milk price needs to be a chart-topping heavyweight
in peak fitness.

Meanwhile, next month will see the Oxford Farming
Conference kick start the year and the pre-conference after dinner speaker is
non-other than Mr Paice himself! And yes, you guessed it, the dinner’s quality
cheese is kindly supplied by Arla! Will Sir Jim enjoy finishing off his meal
with Arla’s cheese slipping down his throat? I doubt it! Julia suggested that
Jim should start by fixing problems closer to home instead of lashing out at
rivals. She has a point: he has plenty on his plate including the high cost the
co-op will incur in closing Maelor which, with 230 plus staff, will be a
multi-million pound hit on their accounts. Ultimately Jim will be judged in
2014 on the performance of the business, its end of year results/accounts and
the milk price it pays to its members. He will not be judged on the basis of
how he apportions blame around the industry or on a war of words.

Now to United Dairy Farmers (United) and its Dale
Farm processing business. I recently had the opportunity to meet and question
the co-op’s senior management team.

UDF is a 100% British farmer-owned co-op which only
occasionally crosses the radar, preferring to quietly get on with its job. You
don’t hear David Dobbin, its CEO of 14 years, and whose previous PLC background
was in business included turn-arounds and acquisitions, looking over his
shoulder and criticising others or trumpeting about what he intends to do.
Instead he concentrates on tangible achievements, like the fact he has presided
over 12 acquisitions while at United - not one of which has failed.

United and Dale Farm have both national and
international presence. They are a real global player in the dairy world with
six processing plants (four in Northern Ireland, one each in England & Scotland),
and, after substantial investment, have what they and others say is the most
advanced cheese and whey processing plant in the EU.

If they are not already the largest indigenous UK
dairy co-op owned by English, Scottish and Northern Irish dairy farmers
employing more than 1,000 people they soon will be. United has a milk pool of
more than 1 billion litres of milk with a projected Group turnover of £475m in
the current year from its combined operations, with Dale Farm reporting a 35%
increase in turnover in the first six months of the year.The United Group consistently make £5m or so
profit each year with the co-op’s main focus on returning the best milk price
it can to its members.Dale Farm’s
cheese output has increased to 45,000 tonnes of cheese this year and they
expect to grow this to 50,000 tonnes by 2015.They company have moved away WMP and SMP milk powder commodities to
producing added-value enriched powders and whey proteins. United are simply a story
of growth and success and their ambition is to continue to grow in volume and
value. Turnover at its Kendal factory has doubled in the past 10 years and at
its Scottish plant it has more than trebled, for example.

Preferring to stick with a farmer chairman, the
largely farmer board’s focus is firmly on expansion in consumer products across
the British Isles (largely cheese, butter, desserts, yoghurts and cottage
cheese) and specialized dairy ingredients on a global basis realizing that
expansion potential is very limited in the small Northern Ireland market. Dale
Farm will export over £100 million of dairy products to 42 countries worldwide
this year making them one of the UK’s largest dairy exporters.On direct supply recruitment they say they
will continue to pay an above average GB milk price.

The Dale Farm’s GB plants have grown their milk
pool to 60 million litres of direct suppliers and is recruiting to grow this to
100 million by 2014. With no capital contributions to become a full co-op
member, a 0.25ppl x 5 year’s share purchase (which if you leave is paid on full
within three months), plus a fixed 0.5ppl annual co-op bonus payment, it would
seem one of the most tempting contracts in town. It’s certainly a business with
a bright future and one with a realistic target to double in size in the next
five years.

Finally Happy Christmas to all readers and fingers
crossed for a happy and prosperous 2014.The signs, I’m afraid, are that dairy farmers need to buckle up their
dairy seat belts for what looks like a choppy ride. And by that I mean on
price. Not from another tongue lashing!

There is only one subject on which to start
this article, or rather one company. First Milk is regularly topping the news
agenda, but for the wrong reasons. The loss of the ASDA cheese contract, the
closure of its Maelor packing plant and the potential 231 redundancies, plus
its disappointing year-end results has sent shivers down the spines of many of
its members, including some of its die-hards.

The ASDA contract loss and the 300 million or
so litres of milk it accounts for will certainly be a challenge for the co-op
to address, but it doesn't mean it's the beginning of the end like some have
unfairly suggested. First Milk's cheese will still be in in big demand,
providing it hasn't got metal in it! And the situation is nowhere near as bad
as it was for Milk Link when it lost the same contract back in February 2005.
Back then the contract went to Dairy Crest to be made at Aspatria (Cumbria).
Subsequently it proved to be a deal which helped oil the wheels of Dairy
Crest’s sale of its commodity cheese business to First Milk.

Milk Link’s business plan was scrapped on the
Friday and a new one started on the Saturday.They re-shaped the business and changed it having lost their largest
single customer.It wasn’t easy but
since then, many would say, Milk Link never looked back.

So, can the First Milk board and senior
management re-group, cut once and cut deep with cost savings and come out of
the other end smiling?By the time First
Milk hold their AGM at the end of October and this article is published we'll
have fully digested the details of a deal with the Irish Dairy Board, news of
which was breaking as I wrote this article. It’s to be hoped British Kate
(presumably now British + Irish Kate) can prove there's a glimmer of light at
the end of this long pretty dark tunnel. We also look forward to seeing what
the new chairman, Jim Paice, will bring to the party in addition to his
rallying cries to members to “keep the faith” and to “think twice before
jumping ship”.

Also on the subject of change, AFMP is now in
the fast lane towards full Arla membership. However, since my last article one
unwelcome element has been flagged-up to those contemplating signing - a
temporary 0.5ppl price drop from 1st January 2014 resulting from a
butterfat adjustment.

Basically, AFMP members are mainly paid on
white-water contracts, while Arla amba producers are paid on constituents. As
part of the transition an across-the-board deduction of 0.5ppl, irrespective of
the milk quality supplied by individual farmers, will be made because the
current AFMP quality is on the low side.

When the average butterfat lifts to 4% this
deduction will disappear. It is, therefore, the responsibility of all members
to lift butterfats to 4% but the onus is especially on the current lowest fat
producers. For many its unwelcome news, but hopefully temporary.

I don’t think it will be a deal-breaker for
many farmers because, frankly, if the headline-grabber on day one had been 8ppl
to join as full members (I.e the 7.5 announced cost plus 0.5 for the butterfat)
then few producers, if any, would have flinched. It’s still a great entry
price. Any farmers who do balk at the deduction and/or the fact its spread
evenly across all farmers, and dont join on the back of it, are possibly the
non co-operatively minded ones that amba probably won't mind being filtered out
early.

The real question now is whether AFMP members
or Arla directs, and those waiting to supply Arla, decide that 7.5ppl is a good
investment on which they will be rewarded with supplementary (13th) payments
from a strong-performing cooperative. There are inevitably pockets of AFMP
members who are indicating they intend to leave and not be on the bus driven by
Jonathan Ovens (some simply because he is involved!). But only time will tell
how many, and (for those in the latter camp) whether they cut off their noses
to spite their faces.

Last month I joined the EU’s conference which
looked at life after quotas – note its now only 17 months to the end date! There’s
lots I could write about. For example, Ernst & Young did a report for the
Commission, basically stating there is no place for quota or production buy-out
schemes or the various so-called 'post March 2015 supply management proposals'.
Surprisingly their report was almost side-lined at the Conference. The French
Minister, in particular, seems convinced that the European milk market cannot
be left to market forces and that production controls are required immediately
post 2015. The European Milk Board pushed theirflexible supply management concept, which I call Milk Quota’s version 2
, with demands that the Commission must have the power to actively control the
supply of milk to the processors and market.

The Commissioner has agreed to set up a European
Dairy Market Monitoring Agency, which he seems to believe will provide an early
warning to the Commission when the market is in crisis and some intervention
needs to be considered. I question this move because for me the early warning
signals are here, but sadly some of our organisations and representatives fail
miserably in sign-posting those signals to grass roots dairy farmers to allow
them to make informed decisions. It’s been one of my biggest gripes with
DairyCo, and its Market Intelligence Datum department, for example. To date, I
have seen no clear signals from DairyCo/Datum signalling what is likely to
happen to farmgate milk prices next year. The same was the case in 2012. Levy
payers expect Datum to keep them up to date with the latest information on the
markets and with clear messages as to what that translates to at farm level.
So, once again, I will step forward as the doctor to do a bit of diagnosis and
administer some medicine. Milk production across the world is improving and at
a pace, especially in the main exporting countries; feed costs are easing and
the economists with a proven track record are pointing towards a spring 2014
price correction/adjustment. Yes that’s right, I am saying that milk prices are
almost certain to ease across the world in April/May 2014. Until then increases
in production will be absorbed by increasing demand from the likes of China and
Russia.

So the big question is by how much will UK milk
prices increase before they peak and ease back? If they go from say 34p (1st
November) to 36p by 1st January and ease back to 34.5p in April it
won’t be a crisis. So it’s time to stand-up and push for higher prices so that
when the correction comes it will be from a higher level. Let’s hope all dairy
farmers have a good profitable winter.

The Pro-Supply Management Conference speakers
focused on the plight of small family dairy farmers in more remote and
disadvantaged parts of Europe. It’s a topic I hope to revisit next month
following trips to Shetland and Norway.

Away from the speakers and among the conference
delegates there were very mixed feelings as to how successful Producer
Organisations will be. One thing everyone involved in the conference agreed on
was that volatility is here to stay, and so are powerful retailers.

The Commissioner Dacian Ciolos was sitting in
the audience and towards the end his frustration boiled over as he directed the
final 40 minutes challenging delegates to come up with solutions and practical
ideas rather than ideologies. “I want results not unhappy (whinging) people,”
he said. In other words he wanted proposals with reasoned arguments to put to
his experts. But the result was few solutions, lots of whinging and plenty of
homework for Ciolos and his experts to do.

October 2013
Dairy Farmer Article

Milk prices
for some GB farmers have broken the magical 40 euro cents a litre (34ppl) mark,
and as I write others are moving onward to 32.5ppl. If you don’t push hard for
price rises now and then you won’t have a chance come next year, as all the pointers
are for price falls in Q2.

As I write
the October league-topping price is the Muller-Wiseman formula price at 34.55p
which even eclipses the amount paid by the two regular chart coppers of
Waitrose and M & S. This is the first time a non aligned milk price has
leap-frogged these two since their two pools started more than 12 years ago.
Several MW farmers signed-up 100% of their output on the formula, so for now
it’s happier days for them. The MW farmer board, having agreed to a formula
whereby 25% is based on a basket of competitor prices, will be wishing this
element was removed because without doubt it is holding back the price for
hitting 35ppl.